n 1998, the Syndicated Bank Loan
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Get it written →n 1998, the Syndicated Bank Loan market (defined as loans having more than two bank lenders)
was a vast and cheap source of debt financing for U.S. corporations. This market was characterized
by a large number of financial institutions that aggressively committed capital to debt issuers
as a way to build market share and increase earnings.
Over the next three years, however, syndicated loan prices increased dramatically while the
quantity of these loans declined. The price increase, measured as a markup over the cost of funds
or LIBOR (London Interbank Offered Rate), is illustrated in the figure labeled ?All-In Drawn
Pricing.? For example, the price to BBB-rated companies rose from 37.5 basis points in 1998
to approximately 129 basis points in 2002. This is a 244% increase in the price or spread.
Explain these changes using shifts in demand and/or supply.
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