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THE ECONOMICS OF THE PRIVATE MARKET

Agents' Fees and Other Costs of Issuance

Issuers generally agree in advance to pay the agent a fixed percentage of the face amount of an issue at closing. The fee is thus contingent on successful issuance.

We have little quantitative evidence about fees.  Market participants agreed that fees vary with the quality and complexity of a financing. Low-rated or complex deals require more analysis and are more difficult to distribute and shepherd through the lender due diligence and final negotiation stages. Also, percentages vary inversely with deal size. Agents' costs have a large fixed component that is independent of deal size, and thus agents must earn a larger percentage of small deals.

For a $100 million straightforward A-rated private issue, market participants gave fee estimates that ranged from 3/8 to 5/8 percentage point, with the most common answer being 50 basis points. Estimates ranged widely for complex or small issues, up to several percentage points.  Many participants stated that fees have fallen slightly in recent years.

Issuers bear other fixed costs of issuance.  Besides the opportunity costs of cooperating with due diligence by agents and lenders, issuers must pay the lenders' bond counsel and typically must also retain their own counsel and pay other miscellaneous costs associated with negotiations.  Market participants' estimates of these costs varied widely, but for straightforward issues were often between $50,000 and $125,000, or 5 to 13 basis points for a $100 million issue.

Private Market Efficiency

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