Characteristics of Euro credit
A major part (more than 80 %) of the Euro debts is made in US dollars. The second (but far behind) is Pound Sterling followed by Deutsch mark, Japanese yen, Swissfranc and others.
Most of the syndicated debts are of the order of $50 million. As far as the upper limits are concerned, amounts involved are of as high magnitude as $5 billion and more. In 1990, Euro tunnel borrowed $6.8 billion.
On an average, maturity periods are of about five years (in some cases it is about 20 years). The reimbursement of the loan may take place in one go (bullet) or in several installments.
The interest rate on Euro debt is calculated with respect to a rate of reference, increased by a margin (or spread). The rates are available and generally renewable (roll over credit)every six months, fixed with reference to LIBOR. The LIBOR is the rate of money market applicable to short-term credits among the banks of London. The reference rate can equally be PIBOR at Paris and FIBOR at Frankfurt, etc. It is revised regularly.
The margin depends on the supply and demand of the capital as also on the degreeof the risk of these credits and the rating of borrowers. Financial institutions are in vigorous competition. There is an active secondary market of Euro debts. Numerous techniques allowbanks to sell their titles in this market.
15 Comments