Pricing and fees. Investment grade debt in the form of bonds is typically priced off LIBOR. Occasionally, a revolving credit facility is priced using prime, and more frequently, the drawn portion of a one to five year revolver is being priced off the one to five year credit default swap. Pricing for high-grade or investment-grade debt is based on the issuer credit rating. Term loans are virtually nonexistent for investment-grade companies, as they prefer the flexibility of a revolver, or the commercial paper market for short-term, and corporate bonds for the long-term market. For the leverage market, the pricing is based almost exclusively as a spread over LIBOR. Credit ratings are not used in leverage debt pricing. However, in the leverage market, performance grids are used which price tranches according to ratios such as debt to EBIDTA. Pricing grids can be used in investment grade debt as well to adjust the spread as the ratios change. Larger loans are typically priced by the syndication desk. Syndication is a market-based group that works to distribute the loan to a group of lenders. Flex pricing is used to adjust the pricing of a loan right up until the deal closes. This makes pricing a loan much more like pricing a traditional debt capital markets product. We will discuss the syndication process in more detail shortly. Here's an excerpt from a term sheet of a leveraged deal. The deal shows three facilities to be syndicated, a $1 billion revolver, $750 million term loan A, and a $550 million term loan B. The term loan A will be priced on LIBOR, but according to the leverage grid below. We don't know here how leverage is defined, but typically it is total debt to EBITDA, as that is the most common ratio in the leverage market. And just a quick note, the term loan B, which is also priced off of LIBOR, has something called a 0% floor. Rates and loan agreements often have caps and floors. Floating rates and loan agreements often have caps and floors. In this case, zero floor means that if the benchmark rate drops below zero, the borrower is only obligated to pay the spread, and zero interest on the floating rate component. Here are two graphs of pricing spreads, the top graph being for high-grade debt, the bottom graph being for non-investment grade debt. In the top graph, we see some edging away of the triple B or Baa section. There's been a huge spike in the number of triple B and Baa debt issuances since the 2008 crash. Pricing has grown richer in that end of the market as leverage levels have increased with those credits. There have also been numerous downgrades of triple B companies, two sub investment grade and that has been reflected in the pricing. On the sub investment grade side below we see that the pricing is tighter, but note the spreads on the left side of the graph and see how much higher they are for sub investment grade debt than they are for investment grade debt. This is a reflection of course of the riskiness of the credits, particularly the loss given default risk. Banks are looking for a good spread on the loan plus other sources of income, notably fee income. This fee income comes in the form of cash management business, pension fund management, as well as other product areas such as derivatives, M and A equity capital markets or debt capital markets if it's a full service investment bank. Issuers on the other hand are aware of this and try not to overpay a bank that is in on the action in other product areas. In the loan market the fees that you will see commonly are the upfront fee which is paid by the issuer at the close of the deal. This is typically 100 to 500 basis points. The lead arranger or co-arrangers which we'll discuss in the syndication section, receive larger amounts for structuring and underwriting the deal. There's a commitment fee, which is paid to lenders on the undrawn amounts of a revolver or prior to funding a term loan. A facility fee, this is paid on the facility's entire amount regardless of what has been drawn. A usage fee, which is paid when the revolver is drawn above a set level. A prepayment fee, this typically only applies to the institutional term loans. Those would be those term loans B, C and D if they exist and that's usually about 2% of a penalty in the first year and the 1% penalty in year two. Typically, you don't see any penalties beyond that. The admin agent fee is an annual fee paid to the bank that is distributing the interest in principle payments, as well as maintaining the lender lists. The lender lists can change if the loans are assigned or traded away to other banks. A lender list can change if the loans are assigned or traded to other banks or loan investors. There's also a collateral monitoring fee. A letter of credit fee is a guarantee that lenders will make funds immediately available for corporate activities.