Mind the Gap: The Difference between U.S. and European Loan Rates

50 Pages Posted: 12 Apr 2016

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Anthony Saunders

New York University - Leonard N. Stern School of Business

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2016

Abstract

We analyze differences in the pricing of syndicated loans between U.S. and European loans. For credit lines, U.S. borrowers pay significantly higher spreads, but also lower fees, resulting in similar total costs of borrowing in both markets. For term loans, U.S. firms pay significantly higher spreads. While European firms across the rating spectrum issue terms loans, only low quality U.S. firms rely on term loans. U.S. issuers perform worse after loan origination compared to European issuers, which explains 30% of the spread differential. Increasing loan supply by institutional lenders in the U.S. since 2003 eventually fully removed the term loan pricing gap.

Keywords: Loans, corporate debt, fees, market integration, globalization

JEL Classification: G30, G20, G15

Suggested Citation

Berg, Tobias and Saunders, Anthony and Steffen, Sascha and Streitz, Daniel, Mind the Gap: The Difference between U.S. and European Loan Rates (March 2, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-018. Available at SSRN: https://ssrn.com/abstract=2762275 or http://dx.doi.org/10.2139/ssrn.2762275

Tobias Berg

Frankfurt School of Finance & Management ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Anthony Saunders

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

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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