Glossary
Deal economics
What is spread?
Margin over the reference rate, quoted in basis points.
What you are paid for taking the credit risk. Push spread up and you earn more per year but make yourself easier to outbid; 100bps equals one percent.
A worked example
A loan priced at SOFR + 575bps with SOFR at 4.3% pays 10.05% a year. On a $100m loan, every extra 25bps of spread is another $250k of income a year.
Where it catches you in the game
- Spread is the main negotiation lever: it lifts income and lowers acceptance probability.
It comes up most on the private credit desk and 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 spread does to your returns.