Glossary
Credit and risk
What is bridge loan?
A committed loan funded only if long-term financing can't be raised in time.
It gives a seller certainty that the buyer can pay. If bond markets shut before closing, the banks fund it themselves.
A worked example
A buyer signs a $2bn acquisition backed by a bridge loan from its banks. Over the next few months it issues $2bn of bonds and repays the bridge. The banks collect their commitment fees even if the bridge is never drawn.
Where it catches you in the game
- Bridge scenarios ask whether to commit alone or in a club, and with which protections.
It comes up most on the leveraged finance desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what bridge loan does to your returns.