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Structure and pricing of large bank loans

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  • James R. Booth
  • Lena Chua
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    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.

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    File URL: http://www.frbsf.org/econrsrch/econrev/95-3/econrev.-20.pdf
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    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1995)
    Issue (Month): ()
    Pages: 52-62

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    Handle: RePEc:fip:fedfer:y:1995:p:52-62:n:3
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    Keywords: Bank loans ; Interest rates;

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    1. Mitchell Berlin, 1986. "Loan commitments: insurance contracts in a risky world," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-12.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Anjan V. Thakor & Gregory F. Udell, 2004. "An Economic Rationale for the Pricing Structure of Bank Loan Commitments," Finance 0411053, EconWPA.
    4. Robert B. Avery & Allen N. Berger, 1990. "Loan commitments and bank risk exposure," Working Paper 9015, Federal Reserve Bank of Cleveland.
    5. Simon H. Kwan & Willard T. Carleton, 1995. "The role of private placement debt issues in corporate finance," Working Papers in Applied Economic Theory 95-13, Federal Reserve Bank of San Francisco.
    6. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    7. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    8. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
    9. Eckbo, B. Espen, 1986. "Valuation effects of corporate debt offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 119-151.
    10. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    11. Thomas F. Brady, 1985. "Changes in loan pricing and business lending at commercial banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-13.
    12. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
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    Cited by:

    1. Kleimeier Stefanie & William L. Megginson, 2002. "An empirical analysis of limited recourse project," Research Memorandum 066, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Beatty, Anne & Ramesh, K. & Weber, Joseph, 2002. "The importance of accounting changes in debt contracts: the cost of flexibility in covenant calculations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 205-227, June.

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