Defination:
Loan Syndication is a arrangement of large portion of loan from the different lenders.In this process many lenders participate in providing loan to any entity ia case where a loan amount is large enought for single lender to provide.
This process of Raising loan is used where the amount of loan is very large and Borrower want to raise loan quikly and conveniently.It is also used when the exposer limit or appetite of any lender exceeds its loan issuing capacity.Also, Borrowers not want to deal with large numbers of lenders.
Roles within Syndication Process:
1.Arranger or Lead Manager:Role of lead manager is to arrange loan form different Banks or lenders and also ensure that the syndication is fully subscribed.He charge arrangement fee in return of providing his service.
2. Underwriting Banks:It is a Bank that commit to supply the funds to the Borrowers,if necessarly from its own resources if the loan is not fully subscribed.It is not necessarly that all syndicated loan are fully underwritten.There is also a risk associate that loans may not be fully subscribed.
3.Participating Banks:Banks that participate in Syndication process by providing portion of the total amount required charge interest and participation fees.It also involve borrowers credit risk as same as normal loans.
4.Facility Manager or Agent:He is a person one who takes care of administrative arrangements over the term of loans eg Disbursement, Repayments, Compliance.In Larger syndications co-arranger and co-manager may be used.
Benefits to the Borrowers:
1.Borrowers Deals with single Bank in Loan Syndication Process.
2.It is a quiker and simpler than other ways raising capital.(eg Issue of Bonds anf Equity)
Benifits to the Lead Banks:
1.Lead banls can earned arrangement and other fees without committing capital.
2.Loan Syndication process helps Lead Bank to enhance its reputation by showing its expetise in loan syndication process.
3.It helps to enhance Banks relationship with the client.
Benifits to the Participating Banks:
1.By Participating in Loan syndication process,banks access to lending opportunities with low marketing costs.
2.It helps participating Banks to participate in future syndication.
3.If there is a case when Borrowers goes into difficulties in repayment then,participating banks have equal treatment.
Stages:
1.Pre Mandate Phase:The prospective Borrower may liaise with a single bank or may invite competivite bids from a number of banks.
The lead banks need to:
a) Identify the need of the Borrowers.
b) Designed an appropriate loan structure.
c) Develop a persuasive credit proposal.
d) Obtain internal approvals.
2.Placing the Loan:The lead bank can start to sell the loan in the marketplace.
The lead bank need to:
a) Perpare an information memorandum
b) Prepare a Term Sheet
c) Prepare a legal Documentation
d) Approach selected banks and invite participation
There shouldd be a Negotiation with Borrower may be needed if prospective participants raise concern.
3.Post-closure Phase:In this phase agent now handels the day to day running of the loan facility.
