Original issue discount

Original issue discount (OID), or décote à l’émission, is the difference between the face value of a loan or a bond and the price at which the lender subscribes to it. For example, the lender disburses 98% of face value and the borrower repays 100%. The 2 point gap pays the lender from the outset and adds to the margin. Its economic effect is close to that of an arrangement fee paid on drawdown. The discount converts into points of annual margin by spreading it over the expected life of the loan, which is shorter than its contractual maturity when the company is likely to refinance. In the second quarter of 2025, European mid-market unitranche financings priced at an issue price of 97.5 to 98.5, for a margin of 5.00% to 6.00% over the reference rate for companies with EBITDA of €75m or less. Built into the margin, the discount brought the credit spread to 5.25% to 6.25%. For you, the discount reduces the net amount received: the financing need is calculated taking these points into account. Offers are compared on total cost, margin and discount combined, and on any prepayment fee that protects the lender’s discount in the event of a quick refinancing.

A company borrows €100m of face value at a price of 98. It receives €98m and will repay €100m. Spread over an expected life of five years, the €2m discount represents around 0.4 point a year. To have €100m net, it would need to borrow around €102m of face value.

• The net amount received on drawdown and the face value to be repaid.
• The conversion of the discount into annual margin over the expected life.
• The comparison of offers on total cost.
• The prepayment fees of the first years.