The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns

Issam Hallak

No 75, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: The paper explores the determinants of up-front fees on sovereign bank loans. Remuneration of bank loans is typically channelled through the floating interest benchmark, the interest spread, and a battery of fees. There is substantial evidence of the spread paying for long-run sovereign repayment capacity. Little is known, however, about the role of the fees paid up-front. Based on a uniquely extensive sample of LDCs sovereign loan contracts, this study provides substantial evidence of up-front fees capturing the costs due to the expected renegotiations and agency issues. This contradicts previous studies based on spreads only, predicting a pricing difference between public and private debt to LDCs sovereigns.

Keywords: sovereign debt; syndicated loans; up-front fees; pricing design; less-developed countries (search for similar items in EconPapers)
JEL-codes: F34 G21 (search for similar items in EconPapers)
Date: 2001-07-01
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