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The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns

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  • Issam Hallak

Abstract

The paper explores the determinants of up-front fees on sovereign bank loans. Remuneration of bank loans is typically channelled through the floating interest benchmark, the interest spread, and a battery of fees. There is substantial evidence of the spread paying for long-run sovereign repayment capacity. Little is known, however, about the role of the fees paid up-front. Based on a uniquely extensive sample of LDCs sovereign loan contracts, this study provides substantial evidence of up-front fees capturing the costs due to the expected renegotiations and agency issues. This contradicts previous studies based on spreads only, predicting a pricing difference between public and private debt to LDCs sovereigns.

Suggested Citation

  • Issam Hallak, 2001. "The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns," Economics Series Working Papers 75, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:75
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper075.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    sovereign debt; syndicated loans; up-front fees; pricing design; less-developed countries;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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