In the U.S., the private placement and public bond markets most often compete with the loan market, especially with non-investment grade borrowers. The pricing and availability of funds in these alternative markets thus impacts the demand for loans. This segment is made up of investment grade companies that use revolvers to backstop their commercial paper issuance and to provide general corporate liquidity. These companies rarely borrow under their revolvers and do not use term loans. This is historically the largest of the three market segments.
Demand is driven by general economic activity.
Given the low commitment fees that companies now pay for revolvers, the segment now provides very low returns for banks. Companies involved in these transactions often prefer loans to other types of financings because loans offer flexibility in timing and size that is not available in the bond market. Credit spreads and commitment fees are generally more attractive for banks in this segment compared to general purpose facilities. The companies in this segment are non-investment grade. They typically rely on term loans and revolvers as a permanent part of their capital structure.