Glossary
Credit and risk
What is OID?
Original issue discount: a loan sold below par.
A 98 issue price gives investors two points up front. Desks treat a point as about 25bps a year over a four-year life.
A worked example
A $500m loan issued at 98 gives investors a $500m claim for $490m of cash. Spread over a four-year expected life, that 2-point discount adds about half a percent a year to their yield.
Where it catches you in the game
- The OID slider on the leveraged finance desk; past the flex cap, the bank adds OID out of its own fee.
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 OID does to your returns.