Original Issue Discount (OID) Spread
Private Credit glossary · Documentation, Covenants & Terms
Definition
The yield contribution of issuing a loan below par, amortized over the loan's expected life. Using the source's yield-to-takeout convention y_t ≈ y_c + (Par-Price)/(n · Price), a 99 OID on a loan with a 3-year expected life adds roughly 34 bps to all-in yield; on a 4-year expected life, roughly 25 bps. OID is one of three pricing components alongside the floating-rate index and the contractual spread.
Original Issue Discount (OID) Spread in plain English
This is the specific slice of a loan's yield that comes from the Original Issue Discount — the trick of lending out a bit less cash than the borrower must repay. If a lender advances $99 but is owed $100, that $1 discount gets "amortized" (spread out) across the years the loan is expected to last, gently lifting the lender's overall return. Concretely, a 99-price loan adds about 34 basis points (0.34%) of yield over a 3-year life, or about 25 over a 4-year life — the longer the life, the more thinly that one-time discount is smeared, so the smaller its yearly kick. Think of it as buying a $100 gift card for $99: the $1 you saved is real profit, and how much it helps per year depends on how long before you use it up.
Also called: Original Issue Discount (OID)
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