Let's say you have a loan at L+250 and is trading at 98 and LIBOR is at 1%. My understanding is that the yield, assuming a 4-year average life, is 1% + 2.50% + (2*0.25%) = 4.0% My question is WHY is each point of OID equal to 25 bps? And also why do we assume a 4-year avg. life? Just because it'll likely get refinanced in ~4 yrs?
Bonus question: when taking a loan to market, lets say you have 100 bps of flex for OID - you multiply by 4 so you can issue at 96. Again, why do you multiply by 4? Know this is convention but feel like I'm missing 1 or 2 pieces to make it click, thanks guys.
Illum ipsam nobis doloremque aliquam dolore. Necessitatibus laboriosam et nobis ea.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...