What is an original issue discount?

OID is quoted as a price per 100 of face value, so 98 means two points below par. It gives the lender money up front, in effect, and is often used to adjust pricing without changing the stated rate. Lenders usually count it as extra yield over the expected life of the loan.

Say a company borrows $100 million at an OID of 98. The lender hands over $98 million, and the company still owes $100 million.

It adds to a lender’s return beyond the interest rate, so two loans with the same rate can earn lenders different returns.