The determinants of up-front fees on bank loans to LDC sovereigns

Working paper

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.

Authors: Hallak, I

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2001-07-01
• Paper number: 75
• Keywords: less-developed countries; pricing design; sovereign debt; up-front fees; syndicated loans