The Total Costs of Corporate Borrowing in the Loan Market: Don’t Ignore the Fees
More than 80% of US syndicated loans contain at least one fee type and contracts typically specify a menu of spread and different types of fees. We test the predictions of existing theories about the main purposes of fees and provide supporting evidence that: (1) fees are used to Price options embedded in loan contracts such as the draw-down option for credit lines and the cancellation option in term loans; and (2) fees are used to screen borrowers about the likelihood of exercising these options. We also propose a new total-cost-of-borrowing measure that includes various fees charged by lenders.
Year of publication: |
2015-02-10
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Authors: | Berg, Tobias ; Saunders, Anthony ; Steffen, Sascha |
Institutions: | Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München |
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