Call for cheaper route to term debt funding
Australia needs to find cheaper sources of term debt funding than just syndicated loans, one expert believes.
Monash University’s Dr Philip Bayley said corporate bonds are a cheaper source of term debt funding than syndicated loans for those companies that have access to the corporate bond market.
But the pricing of syndicated loans will be competitive when corporate bond issuance is also put on the table as an option.
“No evidence is found of loss-leader pricing of syndicated loans but borrowers without term debt funding options are at risk of being “held up” by their bankers,” Bayley said.
“”In this respect borrowers without a credit rating will incur a significant economic cost on their term debt funding.”
Research on the impact of the syndicated loan market on the development of the domestic corporate bond market showed the borrower’s financial situation and product features influence their choice between syndicated loans and corporate bonds for term debt funding.
“Oligopolistic competition is found to exist between the four major banks but the syndicated loan market operates under conditions of near perfect competition,” Bayley said.
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