Real Effects of Rollover Risk: Evidence from Hotels in Crisis

We analyze and find empirical support for a model of strategic renegotiation in which firms scheduled to roll over debt during a crisis reduce operations to discourage lenders from seizing the collateral. Our empirical analysis exploits contractual features of commercial mortgages that generate exogenous variation in whether debt matures during a crisis. A crisis debt maturity causes large relative drops in output, labor, and profits at the collateral property, even holding the borrower fixed. Consistent with the model, these real effects decrease with the lender’s operating adjustment costs, reverse after renegotiation, and occur primarily for highly-levered loans without term-extension options.