Structure and pricing of large bank loans

Abstract

This paper examines the characteristics of large bank loans as a form of corporate finance. We compare the characteristics of a sample of these loans with private placements and public issues of debt. The unique features of large bank loans that may encourage firms to continue using this source of financing include:borrower flexibility in deciding on the timing and amount of borrowing; the use of fixed-spread floating rate of interest, flexibility of changing and renegotiating contract features,such as covenants, during the life of the contract. The role that bank debt plays in the capital structure of corporations has received much attention in recent years. 1 Among the issues addressed in this research are the possible unique role of bank loans in financing firms ’ activities and how contract features may serve to reduce the adverse

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