Question:
What considerations would a client have when deciding between a) raising debt through a bilateral loan product through the Corporate Bank's balance sheet or b) raising the debt through debt capital markets? Assume the client needs to select one of the above two options for a capital raise.
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Loans have more flexibility for re-negotiating terms/covenants. It's much easier for a borrower to re-negotiate with one loan counterparty than every single bond holder if shit hits the fan with respect to the company's performance.
It also depends how much needs to be raised. If it's a gigantic amount of debt that needs to be raised then it may be syndicated for distribution of risk among creditors, because no single bank will want that much exposure if things go haywire.
I thought covenant structures were generally lighter in DCM with bondholders due to higher risk appetites than the bank?
Loans have more flexibility in that even though they have stricter covenants, banks are more willing to work-out solutions with the borrower. If 100% of a loan is on the bank's balance sheet, then it makes sense for them to get back to the negotiating table and try and resolve a better performance going forward.
There's a point where the default or break in covenant that it's too big of a pain in the ass legally and operationally to go after the assets of the borrower and the cost isn't worth it. It makes more sense for the bank to renegotiate terms sometimes. Generally speaking, there's too many bondholders that it is not really feasible to get every creditor back to the renegotiating table.
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