Libor Stopgap in Loan Market Becomes Margin-Boosting Fixture (1)

Banks making loans to investment-grade companies are using what was supposed to be a temporary crutch to instead boost their returns.

As Wall Street adjusted to a new benchmark for calculating loan rates, they created a temporary add-on fee known as a “credit-spread adjustment,” designed to help lenders get used to the new base rate. Over time, that fee was supposed to be built into the underlying borrowing cost, allowing the adjustments to disappear. But instead it’s turning into more of a permanent fixture for US investment-grade loans.

There have been $933 billion of investment-grade loans this year with banks ...