Are they different or essentially the same? For example, an upfront fee of 200 bps is same as 98.0 OID.
I understand from the lender's perspective, the two are similar since both are utilized to incentivize them to purchase the loan issued by the borrower.
Say if the borrower issues $100mm term loan at par with OID/Upfront fee of 200 bps, the lenders pay 98 cents on the dollar for the loan.
But is one more issuer-friendly? and why are they called different names? (Just curious, really)
Thanks so much!!!
Upfront fee is paid to the arranging bank which may or may not be the ultimate lender depending whether the debt is syndicated. The OID is for the ultimate lender/investor. From the issuer's perspective, both the upfront fee/OID reduce the amount of money they receive so they should be neutral.
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