The total costs of corporate borrowing in the loan market: Don't ignore the fees

Tobias Berg, Anthony Saunders and Sascha Steffen

No 16-017, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Date: 2016
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Citations: View citations in EconPapers (138)

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Journal Article: The Total Cost of Corporate Borrowing in the Loan Market: Don't Ignore the Fees (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:16017

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