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

51 Pages Posted: 14 Sep 2018

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Anthony Saunders

New York University (NYU) - Leonard N. Stern School of Business

Sascha Steffen

Frankfurt School of Finance & Management

Date Written: February 10, 2016

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.

Suggested Citation

Berg, Tobias and Saunders, Anthony and Steffen, Sascha, The Total Costs of Corporate Borrowing in the Loan Market: Don't Ignore the Fees (February 10, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 17. Available at SSRN: https://ssrn.com/abstract=2760344 or http://dx.doi.org/10.2139/ssrn.2760344

Tobias Berg

Frankfurt School of Finance & Management ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Anthony Saunders

New York University (NYU) - Leonard N. Stern School of Business

44 W. 4th St
Suite 9-160
New York, NY 10012
United States

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

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