For more information, get in touch with our team:
+44 7918 53 08 73
Hint mode is switched on Switch off

Syndicated loan

Category — Loans
Syndicated loan is a form of loan in which two or more lenders jointly provide a loan to one or more borrowers under the same uniform terms and sign the same loan agreement. Usually one of the banks is appointed by the agent bank to manage the loan process on behalf of the other participants in the syndication process. During the syndicated loan process, the organizers raise investment funds for the borrower due to the need for capital. The borrower pays the organizers a commission for the organization, which is higher, the more complicated the procedure for granting a loan and the risk is higher. A syndicated loan should be distinguished from a joint loan, in which each participating bank contacts the borrowers, collects information on the borrower and receives loan payments separately without the participation of the agent bank.

Objectives of the syndicated loan:
The organization of this loan can serve several purposes. It can be the provision of support for general corporate goals, including covering capital costs, increasing the volume of working capital, promoting the expansion in the market. In addition, it could include refinancing the existing capital structure or supporting a full recapitalization, including in some cases the payment of dividends to shareholders. However, the main purpose of these loans is increasingly becoming the financing of mergers and acquisitions, when the buyer uses the borrowed funds to acquire the corresponding share in the acquisition process.

Types of syndicated loans:
• Guaranteed loan - in this case, the organizers guarantee the attraction of a loan in full at their own expense, and then syndicate this loan to other banks and institutional investors. If it is not possible to secure a subscription for a loan for the entire planned amount, the organizers cover the difference from their own funds and may in the future try to sell the loan to investors again.
• Best Efforts Syndicate - in this case, the organizing group will provide an amount less than the planned loan amount, intending to cover the difference by raising funds from the market. If the subscription to a loan does not reach the required level, the transaction may not be closed in principle, or it may take additional time to cover the transaction.
• Club Loan - a smaller loan that is offered non-publicly to a group of borrowers with whom they have established business relationships. The organizer in this case plays the role of the first among equals, and each creditor receives their share of the commission, often almost equal to the share of the organizer.

Features of the syndicated loan:
• Longer term and larger amount. In this regard, syndicated loans are often used to finance large projects, in particular in the oil and gas, telecommunications and transport industries for project financing and leasing of large equipment.
•It takes less time and efforts to implement. Usually the work of collecting the syndicate of participants is the responsibility of the organizer of the transaction, after the organizer and the borrower agree on the preliminary terms of the loan. The borrower does not need to meet with all potential participants in the syndicated loan. The agent bank is responsible for the respective loan payments and other loan management activities.
• Improving the image of the borrower. The successful issuance of a syndicated loan occurs after the participants are convinced of the proper financial condition of the borrower, which allows for the improvement of its reputation in the future.
Terms from the same category