EURIBOR 90 day? 1 year? etc

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transferpricingCFA

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Hi all,
Just wondering, when a loan is issued that is for example at EURIBOR + 6%. If it is for a 10 year loan, is it using the EURIBOR 90 day rate, or is there some sort like 10 year EURIBOR rate?
Same applied for lets say a 1 year loan at uribor + margin?
 
The term of the loan and the basis for its pricing are usually different. For example, you could have a 10-year loan that uses the 6-month LIBOR rate as its interest rate. The rate to be used is always spelled out in the loan agreement.
 
As Chad said, the loan docs should spell it out exactly. I generally see the term of EURIBOR, LIBOR, or whatever, matched to the frequency of coupon payments. So, a 10 year note with semi-annual coupons “usually” uses 6 mo WHATEVERIBOR + spread.
 
OK,
Id like to try and determine that spread if possible for comparable loans.
Say I have the EURO yield curve and I see that BBB 5 year loans are at say 5%. And if 3 month EURIBOR is say 2%. Could it be fair to say that the spread is 3%, and a comparable loan 5 year loan should be priced at EURIBOR + 3% or does this methodology not equate, or is there a better way to determine this?
Thanks
 
If you are using the YTM on the 5% loan that should work. If that is the interest rate on the loan I don’t think that would work since the rate environment is likely different since the loan was executed. You might also look into swap spreads and use that to determine what a fixed rate loan would be for similar credit.
 
on a floating loan. i want to work out a fair rate for that margin above EURIBOR, ie the +x% part. based on current market YTMs
 
Also, could possibly the Zspread be used as that margin? doesnt it represent pretty much just the credit risk part of the interest rate`?
 
I forgot about the z-spread a long time ago so I cannot help you there. I think your YTM spread should work on the floating rate loan though.
 
Alright. Can someone explain what the EUR Swap rate is? Sale a 5-year EUR swap rate is 5%, is this that 5% fixed rate vs the EURIBOR 6 month rate for a 5-year period.
i.e. could be receive 5% fixed for 5-years and pay fluctuating EURIBOR rate every 6 months for 5 years?
Im thinking it would be more accurate to use this swap rate and subtract that from thr 5 year corporate yield curve rather that a EURIBOR rate to get the margin. And this left over margin is mroe likely to reflect the margin for credit risk? Kind of like calculating the asset-swap spread??
Anyone???? please!!!
 
When you say EUR swap rate are you referring to an interest rate swap or a currency swap? If interest rate swap, the only information it’s going to provide is the cost to fix your interest rate (i.e. from floating to fixed) for a certain period.
 
yeh itnerest rate sorry.
So if its 5% 10-year EUR swap, does that mean that its 5% fixed for 10 years right? that simple?
 
Does it make sense that on a EURIBOR + % loan the margin increases for longer term loans?
eg a 1 year loan could be EURIBOR +1% and if given a 5 year loan it oculd be EURIBOR +5%
 
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