THE DETERMINANTS OF UP-FRONT FEES ON BANK LOANS TO LDCSOVEREIGNS

The paper explores the determinants of up-front fees on sovereign bank loans.Remuneration of bank loans is typically channelled through the floating interestbenchmark, the interest spread, and a battery of fees. There is substantial evidence of thespread paying for long-run sovereign repayment capacity. Little is known, however, aboutthe role of the fees paid up-front. Based on a uniquely extensive sample of LDCssovereign loan contracts, this study provides substantial evidence of up-front feescapturing the costs due to the expected renegotiations and agency issues. Thiscontradicts previous studies based on spreads only, predicting a pricing differencebetween public and private debt to LDCs sovereigns....