Loan Syndication: A general Study
Loan Syndication: A General Discussion
Written by: Adv. Rajib Ahmed
Meaning of Loan Syndication:
Loan syndication means a loan offered by a group of lenders (banks or financial institutions) worked together to provide funds for a single borrower. It is a process of involving several different lenders in proving various portions of loan. Loan syndication most often occurs in situations where a borrower needs a large sum of capital to establish a large project or needs in his big corporation.
Objective of syndication Loan:
The main objectives in syndicated loan are to remove the lenders risk exposure levels and to participate in a big project where it is not possible for a single lender because syndicated loans tend to be much larger than standard bank/ financial institutions loan.
Kinds of Loan Syndication: There are three types of Syndications; an Underwritten deal, a best efforts syndication and a club deal.
(a) An underwritten deal: An underwritten deal is one for which the arrangers guarantee the entire commitment, and then syndicate the loan. If the arranger cannot fully subscribe the loan, they are forced to absorb the difference. In this situation arrangers try to sell to investors. It is easy if market condition is good but if contrary then the arrangers may be forced to sell at a discount rate or even take a loss on the paper.
Now question is that why they took such risks in an underwritten deal. There are many reasons behind the same such as it is a competitive tool to win mandates, it requires more lucrative fees.
(b) Best efforts syndication: A best efforts syndication is one for which the arranger group commits to underwrite less than or equal to the entire amount of the loan.
(c) Club deal: A club deal is a smaller loan usually $ 25 -100 million, but as high $ 150 million that is premarketed to a group of relationship lenders. The
Written by: Adv. Rajib Ahmed
Meaning of Loan Syndication:
Loan syndication means a loan offered by a group of lenders (banks or financial institutions) worked together to provide funds for a single borrower. It is a process of involving several different lenders in proving various portions of loan. Loan syndication most often occurs in situations where a borrower needs a large sum of capital to establish a large project or needs in his big corporation.
Objective of syndication Loan:
The main objectives in syndicated loan are to remove the lenders risk exposure levels and to participate in a big project where it is not possible for a single lender because syndicated loans tend to be much larger than standard bank/ financial institutions loan.
Kinds of Loan Syndication: There are three types of Syndications; an Underwritten deal, a best efforts syndication and a club deal.
(a) An underwritten deal: An underwritten deal is one for which the arrangers guarantee the entire commitment, and then syndicate the loan. If the arranger cannot fully subscribe the loan, they are forced to absorb the difference. In this situation arrangers try to sell to investors. It is easy if market condition is good but if contrary then the arrangers may be forced to sell at a discount rate or even take a loss on the paper.
Now question is that why they took such risks in an underwritten deal. There are many reasons behind the same such as it is a competitive tool to win mandates, it requires more lucrative fees.
(b) Best efforts syndication: A best efforts syndication is one for which the arranger group commits to underwrite less than or equal to the entire amount of the loan.
(c) Club deal: A club deal is a smaller loan usually $ 25 -100 million, but as high $ 150 million that is premarketed to a group of relationship lenders. The