The Total Costs of Corporate Borrowing in the Loan Market: Don’t Ignore the Fees

Berg, Tobias; Saunders, Anthony; Steffen, Sascha (10. February 2015): The Total Costs of Corporate Borrowing in the Loan Market: Don’t Ignore the Fees. SFB/TR 15 Discussion Paper No. 489

Abstract

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.

• Item Type: Paper (Discussion Paper)
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B8 - Reputation in der Zertifizierungsindustrie
• Subjects: 300 Social sciences > 330 Economics
• Language: English