Fixed vs adjustable rate on Senior Debt?

by a searcher

3 years ago

Interested in getting the communitys thoughts on going with fixed or variable rate for senior debt? We have been in a low rate environment for a while and the Fed has signaled so until 2023, but wanted to get commentary from this channel...thanks!

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lender from Columbia University

Fixed vs. floating rate will often turn on the type of lenders and type of loan. For senior cash flow loans, pay attention to the base rate (prime vs 3-month LIBOR, which is now transitioning over to SOFR in many deals) that the spread applies over. Sometimes lenders will negotiate a floor on the base rate (e.g., a "LIBOR floor"), which essentially locks you in to a minimum rate even if the reference base rate decreases over the life of the loan. Also pay attention to call protection/yield maintenance requirements/prepayment penalties, which can stand in the way of you refinancing into a cheaper loan in the first few years. Hope this helps and reach out by PM if you'd like to discuss more.

3 years ago | like reply | 0 likes

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