Arrangement fee

The arrangement fee is the fee that the company pays to the arranger or the lender when a financing is put in place. It pays for the analysis of the case, the structuring of the debt, the negotiation of the documentation and, in a syndicated loan, the arranger’s commitment to raise the amount. It is expressed as a percentage of the committed amount. The company pays it at signing or at first drawdown, as a separate payment or as a deduction from the funds disbursed. Agicap points out that a company borrowing from a debt fund pays an arrangement fee as soon as the agreement starts, in addition to the interest paid throughout the life of the loan. Other fees are added depending on the structure: a commitment fee on the undrawn amounts of a facility, an annual agency fee and an underwriting fee. A fee deducted from the funds disbursed has the same economic effect as an original issue discount (OID): the company receives less than the nominal amount it will repay. To compare two offers, the company converts all fees into an annual cost over the likely life of the financing. A 2% fee spread over six years weighs about 0.33 percentage points a year.

On a €200m unitranche, an arrangement fee of 2% represents €4m paid at signing. If the loan runs for six years, it adds about 0.33 percentage points a year to the cost of the financing before discounting. If the company refinances after two years, the annual extra cost rises to about 1 percentage point.

• The fee rate and its basis, committed amount or drawn amount
• The timing of payment, at signing or at first drawdown
• The other fees: commitment fee on undrawn amounts, agency fee, underwriting fee
• The annualised cost of all fees over the likely life of the financing