When a group of lenders—often called a syndicate— provides loans to companies, borrowers typically have to share information with lenders about their financial performance and future plans. The information is usually confidential and could potentially change the current price of a company's stocks. Thus, syndicate members who are privy to this inside information might be tempted to use it to trade the borrowing company's stocks to their advantage.
[This article has been reproduced with permission from Capital Ideas, the research journal of University of Chicago's Booth School of Business http://www.chicagobooth.edu/capideas/ ]