The Journal of Finance · 2015 · 364 citations · 27 references
BusinessBusiness EconomicsEconomicsCorporate FinanceCost Of CapitalFinancial EconomicsBorrowing CostsCost Of DebtCredit MarketsCredit RiskLoan UnderwritingSyndicated LendingBank Borrowing CostsBorrower ScreeningBorrowing Cost AnalysisCorporate Cost Of DebtCorporate Loan PricingDrawdownLoan ScreeningTransaction Cost Of Borrowing
ABSTRACT More than 80% of U.S. syndicated loans contain at least one fee type and contracts typically specify a menu of spreads and fee types. We test the predictions of existing theories on the main purposes of fees and provide supporting evidence that: (1) fees are used to price options embedded in loan contracts such as the drawdown option for credit lines and the cancellation option in term loans, and (2) fees are used to screen borrowers based on the likelihood of exercising these options. We also propose a new total‐cost‐of‐borrowing measure that includes various fees charged by lenders.
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The Pricing of Options and Corporate Liabilities
Fischer Black, Myron S. Scholes · Journal of Political Economy · 1973 · 29.4K citations
Lending Relationships and Loan Contract Terms
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