B lo o m b e r g M a r k e t s February 2003
S yn d i c a t e d L o a n s
Comparing a Syndicated Loan With a Bond
Use the Asset Swap Calculator to evaluate pricing spreads. B y ‚how do you determine whether an
the top of the screen. However, the OAS isn’t directly comparable to the discount margin because of the way the OAS gets calculated. The OAS uses unique current spot, or zero, rates to discount cash flows according to their terms along the entire swap curve. For example, the OAS discounts a cash flow received in six months at the six-month spot rate. The OAS is the number of basis points added to each unique spot rate to get to the current present value of the bond, while the discount margin is a spread over three-month Libor. You can make a more accurate comparison by using three-month Libor forwards. To track forward rates for the U.S., type FWCV US . The forward curve is based on the premise that, for example, if we know what the threemonth and six-month rates are today, we can compute a three-month rate effective three months from now. To analyze forward rates for a specific future date, tab in to one of the date fields at the top of the screen and enter a new date. Tab in to the small
issuer’s bonds or syndicated loans offer more value? It’s all in the spread, or the extra compensation that investors demand above that of a benchmark government bond or swap. To discover which spread measurement gives the most accurate comparison between the values of a loan and a bond, you need to look at the way each measurement gets calculated. For a loan, the measurement is usually the discount margin, or the spread over the current three-month London interbank offered rate to the next refix date—the day that the loan’s floating interest rate changes. That leaves the question of valuing a bond. Some debt issuers and buyers use the optionadjusted spread (OAS), which may not be the best measure. to begin the comparison process,...