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More loan rates tied to borrower's financial performance. (Trends)
The number of syndicated bank loans with rates tied to the financial performance of the borrower is rising as banks seek to protect frail bottom lines. While this trend may be bad news for a company on the skids, it can be a win-win situation for most borrowers and their banks.
Performance pricing links interest rates to a variety of corporate performance indicators, from agency ratings to cash flow. Like floating-rate loans that adjust to interest rate movements, performance-priced loans adjust to changes in borrower health.
Such arrangements reduce the need for restrictive covenants and renegotiated credit agreements. The corporation that gets financially stronger is rewarded, of course, while the bank at least …
