Spread

Spread refers to the difference between two rates or prices. In debt finance, the credit spread is the difference between a corporate bond's yield and the risk-free sovereign rate of the same maturity — reflecting the credit risk premium demanded by the market. In LBO financing, the bank spread added to the reference rate (Euribor, SARON) determines the all-in cost of debt. In financial instrument valuation, the credit spread is the central parameter for fair value measurement of corporate bonds and loans under IFRS 9.

‍

Example: a Swiss SME borrows CHF 15.0 million at SARON + 250bps. With SARON at 1.5%, the all-in rate is 4.0%. For IFRS 9 fair value measurement, if the market credit spread for this risk profile has widened to 320bps, the loan's market value is below par — the holder recognises a fair value loss of approximately CHF 850,000 relative to nominal value.

‍

Hectelion uses credit spreads in financial instrument valuations and loan fair value assessments for IFRS reporting and M&A due diligence.