SYNDICATED LOAN-GLOBAL APPROACH

SYNDICATED LOAN-GLOBAL APPROACH

M.Com (BANKING AND FINANCE) 1ST SEMESTER

SUBMITTED BY AARTI YADAV ROLL NO: 119

SYDENHAM COLLEGE OF COMMERCE AND ECONOMICES CHURCHGATE, MUMBAI-20

SYNDICATED LOAN-GLOBAL APPROACH

UNIVERSITY OF MUMBAI

PROJECT ON SYNDICATED LOAN-GLOBAL APPROACH

MASTER OF COMMERCE (BANKING AND FINANCE) SUBJECT: FINANCIAL SERVICES SEMESTER I (2012-2013)

In Partial Fulfilment of the Requirement under Semester Based Credit and Grading System for Post Graduates (PG) Program under Faculty of Commerce

SUBMITTED BY AARTI YADAV ROLL NO: 119

PROJECT GUIDE PROF. Mrs. SMITA KUNTE

SYDENHAM COLLEGE OF COMMERCE AND ECONOMICES CHURCHGATE, MUMBAI-20

SYNDICATED LOAN-GLOBAL APPROACH

CERTIFICATE
This is to certify that Ms. Aarti Yadav of M.Com. Banking and Finance Semester 1st [2012-2013] has successfully completed the Project on SYNDICATED LOAN-GLOBAL APPROACH under the guidance of Mrs. SMITA KUNTE.

Project Guide

_________________

Course Coordinator

__________________

Internal Examiner

__________________

External Examiner ___________________

Principal ___________________

Date: _________ Place: Mumbai

SYNDICATED LOAN-GLOBAL APPROACH

DECLARATION
I Ms. Aarti Yadav the student of M.Com (Banking and Finance) 1st Semester (2012-2013), hereby declare that I have completed the project on SYNDICATED LOAN-GLOBAL APPROACH. The information submitted is true and original to the best of my knowledge.

Aarti Yadav (Signature)

SYNDICATED LOAN-GLOBAL APPROACH

ACKNOWLEDGEMENT

In pursuit of this project with deep sense of gratitude I would like to thank and acknowledge the inspiring guidance of my guide Mrs. Smita Kunte. Despite her busy schedule she was always kind and patient to listen to my difficulties and always indicated me the right path. Without her support and cooperation this project would not have been possible. I am also grateful to my classmates who have given me feedback and encouragement. Finally I would like to thank Sydenham College for providing me the adequate platform to complete this project.

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INDEX

Sr.no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Topic Introduction Stages Advantages Parties and their roles Syndicated loan v/s joint loan Types of loan syndication Why do banks syndicate loans? How to evaluate syndication loans? Syndicated facility agreement Loan depot ICICI syndication Service offered Syndication advisory and other services Global approach Syndicated loan review Syndicated loan-2011 Syndicated loan-2012 Changing market Conclusion Bibliography

Page no. 7 11 12 14 15 18 19 20 21 22 23 24 26 27 27 28 29 31 32 33

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SYNDICATED LOAN
INTRODUCTION Syndicated loan is a form of loan business in which two or more lenders jointly provide loans for one or more borrowers on the same loan terms and with different duties and sign the same loan agreement. Usually, one bank is appointed as the agency bank to manage the loan business on behalf of the syndicate members. The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pension funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding. Syndicated loans can be made on a "best efforts" basis, which means that if enough investors can't be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans). Syndicated lending is a form of lending in which a group of lenders collectively extend a loan to a single borrower. The group of lenders is called a syndicate. The loan is called a syndicated loan, in contrast to a bilateral loan, which is a loan made by a single lender to a single borrower. Syndicated loans are routinely made to corporations, sovereigns or other government bodies. They are also used in project finance and to fund leveraged buyouts. Syndicated loans are primarily originated by banks, but a variety of institutional investors participate in syndications. These include mutual funds, collateralized loan obligations, insurance companies, finance companies, pension plans, and hedge funds. Syndicate members play different roles. Some just lend money. Others also facilitate the process. It is common to speak of an arranger, lead bank or lead lender that originates the loan, forms the syndicate and processes payments. But several syndicate members may share these tasks. Syndications with two or more arrangers are not uncommon. In a world where bragging rights are important for securing future deals, a bank may be called an arranger for nothing more than contributing a large part of the loan. Most syndicated loans are floaters, paying a spread over Libor, but other structures abound. Fixed-rate term loans, revolving lines of credit and even letters of credit are syndicated. Loans may be structured specifically to appeal to institutional investors. These might have two tranches: a Tranch A structured as a typical bank loan, such as a floater or revolver, and offered to bank lenders, and
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SYNDICATED LOAN-GLOBAL APPROACH a Tranch B structured as a fixed-rate term loan and offered to non-bank institutional investors.

Loans can be underwritten or originated on a best efforts basis. In the former case, the arrangers commit to a particular sized loan. It is up to them to recruit enough syndicate members to secure that full amount. Should they fail, they make up the shortfall, extending a larger portion of the loan than they had perhaps wanted. With a best efforts deal, the arrangers try to recruit enough syndicate members to achieve a desired loan size. If they fail, however, the borrower simply receives a smaller loan than it had hoped for. The borrower in a syndicated loan incurs two expenses. One is the interest on the loan. The other is fees. These can take various forms, depending on how the loan is structured. Fees may include an administration fee, upfront fee, underwriting fee, commitment fee, facility fee, utilization fee, etc. Syndicated loans, like most loans, pose credit risk for the lenders. This can be extreme, as with some leveraged buyouts or loans to some sovereigns. Credit risk is assessed as with any other bank loan. Lenders rely on detailed financial information disclosed by the borrower. As syndicated loans are bank loans, they have higher seniority in insolvency than bonds. Syndication has been used for decades on an as-needed basis by banks wanting to spread the risk of large loans. The market took off following the first, 1973, oil shock. As the price of oil skyrocketed, banks recycled deposits from oil exporting countries as syndicated loans to oil importing countries, especially less-developed countries in Latin America. The second oil shock, of 1981, and the Fed's experimentations with monetarism, caused interest rates to shoot up in the early 1980s. A number of less-developed countriesincluding Argentina, Brazil, Mexico, the Philippines and Venezueladefaulted on their floating-rate loans. Former Treasury Secretary Nicholas Brady spearheaded a bailout on behalf of the US Government. This combined considerable debt forgiveness with a repackaging of loans as bonds collateralized by US Treasuries. Called Brady bonds, these instruments were actively traded in a secondary market. As the market for syndicated lending to less-developed countries dried up, Michael Milken was launching a wave of leveraged buyouts (LBOs) financed in part by syndicated loans. The market experienced retrenchment again as LBOs faltered, but syndicated lending entered the 1990s as a mature market serving a variety of sovereign and corporate borrowers. During the 1990s, an active secondary market for syndicated loans emerged. This was fuelled partly by the recession of 1991, which forced some banks to trim their balance sheets. Secondary market trading continued a convergence of the syndicated loan and bond markets. As those markets converge, the disparity in how they are regulated presents both opportunities and legal uncertainties. In the United States, most bonds are regulated under the 1933 Act and 1934 Act. Bank loans generally are not, and arrangers of syndicated loans invoke a number of exemptions under those acts to avoid regulation.
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SYNDICATED LOAN-GLOBAL APPROACH DEFINITION OF 'SYNDICATED LOAN' A loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or sovereignty (such as a government). The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR). Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or "lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks. Also known as a syndicated bank facility".

FEATURES 1. Large amount and long term. It can meet borrowers' demand for funds of long term and large amount. It is generally used for new projects loans, large equipment leasing and enterprises' M&A financing in transportation, petrochemical, telecommunication, power and other industries. 2. Less time and effort for financing. It is usually the responsibility of the arranger for doing the preparation work of establishing the syndicate after the borrower and the arranger have agreed on loan terms by negotiation. During implementation of the loans, the borrower does not need to face all members of the syndicate, and relevant withdrawal, repayment of principal with interest and other management work related to the loans shall be fulfilled by the agency bank. 3. Diversified approaches to syndicated loans. The same loan syndications can include many forms of loans, such as fixed-term loans, revolving loans, standby L/C line on requirements of the borrower. Meanwhile, the borrower can also choose RMB, USD, and EUR, GBP and other currency or currency portfolio, if needed. 4. It can help borrowers establish a good market image. Successful establishment of the syndicate comes from the participants' full recognition of the borrower's financial and operational performance, by which the borrower can build up their reputation.

The syndicated loan is a financing method evolved from bilateral loan. Under the arrangement of syndicated loan, one bank or several banks (as the arrangers) organize other banks to grant loans to the same borrower under one loan agreement according to agreed terms.

SYNDICATED LOAN-GLOBAL APPROACH

Syndicated loans have the following features: Huge amount and long term loans. Less pressure on banks and diversified risk. As for the borrower, syndicated loans provide large amounts of loans with longer term and easy operation management (only need to contact with the agent bank). Fewer restriction on the use of proceeds (compared with government loans and export credit) Easier management (Compared with loans borrowed separately from different banks) Syndicated loans can be structured to incorporate various options. As in the case of FRS, a drop lock feature converts the floating rate loan into a fixed rate loan if the benchmark index hits a specified floor. A multi-currency option allows the borrower to switch the currency of denomination on a rollover date. Security in the form of government guarantee or mortgage on assets is required for borrowers in developing countries like India. Syndicated loan is more suitable as compared to a simple loan from single or multiple banks. The borrower does not have to deal with a large number of lenders. It has permitted the issuers to achieve more market-oriented and cost-effective financing. Loan syndications are a cost-effective method for participating institutions to diversify their banking books and to exploit any funding advantages relative to agent banks. Syndicated loans have increasingly become the corporate financing choice of largeand mid-size firms. As a result, syndicated lending has become a major component of today's financial landscape. Syndicated lending also allows banks to compete more effectively with public debt markets for corporate borrowers. To a large extent, the development of the loan syndication market has stemmed, if not reversed, the trend toward disintermediation of corporate debt by reducing the differences between intermediated and public debt markets.

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STAGES IN SYNDICATION

PRE-MANDATE STAGE

PLACING THE LOAN AND DISBURESEMENT

POST-CLOSURE STAGE

Broadly there are three stages in syndication, viz., Pre-mandate phase, the loan and disbursement and post-closure stage.

Placing

1) PRE-MANDATE STAGE: - This is the initiated by the prospective borrower. It may liaise with a single bank or it may invite competitors bids from a number of banks. The borrower has to mandate the lead bank, and the underwriting bank, if desired. Once the lead bank is selected and mandated by the borrower, the lead bank has to undertake the appraisal process. the lead banks needs to identify the needs of the borrower, design an appropriate loan structure, and develop a persuasive credit proposal. 2) PLACING THE LOAN AND DISBURSEMENT

At this stage, the lead bank can start to sell the loan in the marketplace i.e. to prospective participating banks. this means that the lead bank needs to prepare an information memorandum, prepare a term sheet, prepare legal documentation, approach selected banks and invite participation. A series of negotiations with the borrower are undertaken if prospective participants raise concerns.

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To conclude this stage the lead bank must achieve closing of the syndication, including signing. If need be, underwriting bank has to sign the balance portion of the loan. Loan is disbursed in phases as agreed in the loan contract. Loan is disbursed in no-lien account i.e. a bank account created exclusively to disburse loan. This account and its withdrawals are monitored by banks. This is to ensure that the loan is used only for the purpose defined in the loan agreement and that the funds are not diverted to any other purpose.

3) POST-CLOSURE STAGE This is monitoring and follow-up phase. It has many times done through an escrow account. Escrow account is the account in which the borrower has to deposit its revenues and the agent ensures that the loan repayment is given due priority before payments to any other parties. Hence in this stage, the agent handles the day-to-day running of the loan facility.

ADVANTAGES/BENEFITS OF SYNDICATED LOANS In addition, economists and syndicate executives contend that there are other, less obvious advantages to going with a syndicated loan. These benefits include:Syndicated loan facilities can increase competition for your business, prompting other banks to increase their efforts to put market information in front of you in hopes of being recognized. Flexibility in structure and pricing. Borrowers have a variety of options in shaping their syndicated loan, including multicurrency options, risk management techniques, and prepayment rights without penalty. Syndicated facilities bring businesses the best prices in aggregate and spare companies the time and effort of negotiating individually with each bank. Syndicate banks sometimes are willing to share perspectives on business issues with the agent that they would be reluctant to share with the borrowing business. Syndicated loans bring the borrower greater visibility in the open market. Bunn noted that "For commercial paper issuers, rating agencies view a multi-year syndicated facility as stronger support than several bilateral one-year lines of credit."

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Benefits to the borrower Raising a loan which would exceed the capacity of a single bank. Cutting down on management capacity since the borrower communicates only with the arranger/agent. Broadening the financing base through the participation of other banks. Typically less costly than numerous lines through multiple institutions. It helps to enhance broader financial relationships. Deals with a single bank. Quicker and simpler than other ways of raising capital. E.g. Issue of equity or bonds. Benefits to the investor Establishing direct relationships with new customers. Enables much broader risk diversification without significant additional marketing efforts. Due to uniform documentation there is a better chance for a subsequent placement on the secondary market. Contract documents and information provided at no expense. Benefits to the lead banks Fund arrangement and other fees can be earned without committing capital. Enhancement of banks reputation. Enhancement of banks relationship with the client. Benefits to the participating banks Access to lending opportunities with low marketing/ processing costs. It triggers more opportunities to participate in future syndications as network of the banks establishes a level of comfort with each other. In case the borrower runs into difficulties, participant banks have equal treatment.

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PARTIES AND THEIR ROLES WITHIN THE SYNDICATION PROCESS

The lead bank and participating banks are the main parties involved in loan syndication. In large loan amounts, sometimes there are four parties involved, other than the borrower, in the syndication process. These are arranger {lead manager/ bank}, underwriting Bank, Participating Banks and the facility manager {agent. their roles are defined as follows:-

1. Arranger/lead manager It is a bank which is mandated by the prospective borrower and is responsible for placing the syndicated loan with other banks and ensuring that the syndication is fully subscribed. This bank charges arrangement fees for undertaking the role of lead manager. Its reputation matters in the success of syndication process as the participating banks would agree or disagree based on the credibility and assessment expertise of this bank. In other words, since the appraisal of the borrower and its proposed venture is primarily carried out by this bank, onus of default is indirectly on this bank. Thus this bank carries reputation risk in the syndication process. 2. Underwriting bank Syndication is a process of arranging loans, success of which is not guaranteed. The arranger bank may underwrite to supply the entire remainder (unsubscribed) portion of the desired loan and in such a case arranger itself plays the role of underwriting bank. Alternatively a different bank may underwrite (guarantee) the loan or portion (percentage of the loan). This bank would be called the underwriting bank. It may be noted that all the syndicated loans may not have this underwriting arrangement .Risk of underwriting is obviously the underwriting risk. It means it will have to carry the credit risk of the larger portion of the loan. 3. Participating banks These are the banks that participate in the syndication by lending a portion of the total amount required. These banks charge participation fees. These banks carry mostly the normal credit risk i.e. risk of default by the borrower. As like any normal loan. These banks may also be led into passive approval and complacency risk. It means that these banks may not carry rigorous appraisal of the borrower and has proposed project as it is done by the lead manager and many other participating banks. It is this bankers trust that so many high profile banks cannot be wrong. This may be seen in the light of reputation risk of the lead manager.

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4. Facility manager/agent Facility manager takes care of the administrative arrangements over the term of the loan (e.g. Disbursements, repayments and compliance). It acts for and on behalf of the banks. In many cases the arranging/underwriting bank itself may undertake this role. In larger syndications co-arranger and co-manager may be used. DIFFERENCES BETWEEN SYNDICATED LOAN AND JOINT LOAN Item Inter-bank Relationship Syndicated Loan All members join together to contact with borrowers through lead and agency banks. All banks make loan decision on the basis of the information memorandum provided by the lead bank Unified contract Joint Loan All banks, independent from each other, contact with borrowers separately All banks collect information separately and go through many rounds of examination. Each bank signs contract with the borrower by itself. Each bank negotiates with the borrower separately with different terms of loans.

Approval of Loans

Loan Contract Loan Terms (interest rate, term, guarantee type) Loan Dispersement Loans Management

Unified conditions

Funds are collectively transferred Loans are dispersed separately with in agreed proportions via the derivative deposits retained at each agency bank. bank. In the charge of the agency bank Management of its own share of loans by each bank

The agency bank is responsible for the collection of principal and Recovery of interest according to the contract Loan Principal and transfer of relevant amounts and Interest to designated account of each bank in lending proportions

Each bank collects principal and interest according to repayment of principal with interest plan separately agreed with its borrowers

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Currency Syndicated loan mainly adopt RMB. Besides it, USD, EUR, GBP and other currencies are also available. Multiple currencies can be used in a single syndicated loan on demand of the borrower. Term Three to five years for short-term, seven to ten years for medium-term and 10-20 years for long-term. Interest Rate The price of syndicated loan is composed of loan interest and fees. Lending interest rate shall be set, according to different borrowers, in line with lending interest rate policies of the People's Bank of China, lending interest rate regulations of Bank of China and provisions of the syndicated loan contracts. Charges Charges mainly include arrangement fee, underwriting fee, agency fee, commitment fee. Target Customers 1. Borrowers who require long-term and large-amount loan. 2. Borrowers with high reputation in the industry, whose operation ability as well as financial and technical strength are recognized by most banks. Application Qualifications 1. The borrower should be the legal persons of enterprises and public institutions as well as other economic organizations approved and registered in People's Republic of China. 2. The borrower must be qualified for basic terms and conditions on the borrowers of Lending General Provisions as well as crediting management policy issued by the Bank of China. 3. The borrower shall meet requirements of certain level after credit rating by the Bank of China or other recognized rating agency; 4. The borrower shall be large and medium manufacturing enterprises or project companies with sound operation and finance as well as strong competition in respective industries, which shall be promising in the development. 5. The borrower has established a regular and sound partnership with Bank of China Group.

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6. In the event of joining the syndicate set up by other banks, the arranger bank shall be a policy bank, state-owned holding bank or foreign bank with sufficient credit and operational strength. Required Documents 1. Relevant information on the borrower and their Chinese and foreign shareholders and guarantors; 2. Business license and articles of association of the borrower as well as joint venture or cooperation contracts of foreign-funded enterprises and inland associated enterprises; 3. Project proposals, feasibility study reports, engineering estimates and other documents approved by government departments and approval documents, as well as he approval documents on the project provided by administrations of taxation, environmental protection, and customs; 4. Purchase contracts, construction contracts, and supply and sale contracts of project equipment. 5. Other documents or information needed by the bank.

Kind Reminder Business of syndicated loan mainly involves arranger, lead bank, manager, participant, agency bank, coordinator and other members, who will perform the duty, enjoy the right and assume the risk according to the contract or their respective lending proportion. Syndicate member banks are divided into three main levels: first, arranger (lead bank); second, manager; third, participants. 1. The arranger, responsible for organization and arrangement of the syndicated loan, is a bank or banks which undertake preparation of syndicate and distribution on commission of customers. The arranger usually will underwrite the whole issue of syndicated loan. 2. The lead bank underwrites a larger share of the syndicated loan, ranking the highest among managers. Usually, the lead bank is also the arranger. 3. The manager refers to the position granted by the lead bank according to loan amount and level undertaken by each bank in the syndicated loan with larger amount and more participants. It's a bank responsible for establishing syndicate during the preparation stage. The managers, forming manager board of the syndicate, are mainly responsible for organizing the examination of loan projects and feasibility of syndicate establishment, discussing loan documents with the lead bank and finally signing the loan contract. 4. Participants refer to the banks who accept invitation of the arranger to join the loan syndicate and provide loans according to shares determined through negotiation. Differences with the managers: Less loan subscription, assume no responsibility for undertaking and
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other practical preparation of the syndicate. 5. The agency bank is selected by syndicate members and approved by the borrower during the loan period. After signing the loan agreement, the agency bank, on behalf of syndicate members, is responsible for withdrawal, repayment of principal with interest, post-loan management and other issues on loan management as well as communication between syndicate members and the borrower, handling contract breach, etc. in the light of terms of the loan agreement. 6. The coordinator refers to the bank, selected from lead banks, to supervise the whole syndicated loan and to partially undertaken preparation tasks of the bank syndicate. 7. Consultant refers to the bank appointed by the borrower during the syndicated loan period, which provides paid financial advisory service for the borrower to make correct loan decision in face of various quotations and loan terms provided by other banks so as to facilitate all the loan work.

TYPES OF LOAN SYNDICATION A syndicated facility aggregates various financial institutions resources for major debt capital lending. A syndication loan is a commercial financing tool, in this case a debt product that generally involves securing funding from a loan facility, according to the Loan Market Association (LMA), a London-based trade association primarily servicing the European syndicated loan markets. A loan facility is a consortium of financial institutions who pool capital resources and share credit risk exposure for what is generally syndicated lending to the corporate loan market. Term Loan Facility
o

The term loan facility is one type of loan syndication. A specific amount of capital is extended by a lending facility over a set period of time under the term loan facility. Repayment terms may be installments or one payment at the end of the facility period, according to the LMA. The single payment term is generally described as a bullet repayment. The term loan facility ends once the loan is repaid. Revolving Loan Facility

The revolving loan facility is another type of loan syndication. It is different than the term loan facility because borrowers are able to borrow up to the maximum amount of the syndicated loan, repay it and subsequently make further draw-down capital advances during the course of the revolving loan facility. Like a term loan facility, the revolving loan facility is extended for a set time period, such as one, three or six months. At the end of this period, it is technically due for repayment, but in some cases may be refinanced as a "rollover loan."

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Underwritten
o

The borrower knows the full facility amount beforehand in the underwritten syndicated facility. The entire loan amount may be guaranteed by a lead agent or underwriter, and financial institutions may participate with different participation amounts. It is possible for a loan facility to be oversubscribed. The higher risks involved in the underwritten deal can translate into larger profits for the financial institution that syndicates in higher amounts in the facility. Best Efforts

Best efforts syndicated lending goes forward with under-subscribed loan portions. If subscribers are not found to commit to the under-subscribed loan amounts, the borrower may have to accept the lower loan amount or the loan agreement is canceled in its entirety. As a result, borrowers do not know the full facility amount that will ultimately be extended beforehand. WHY DO BANKS SYNDICATE LOANS? A syndicated loan brings banks together in a group to issue a single loan. A syndicated loan is typically a large loan issued by a group of lenders to a single borrower. These lenders are usually banks, but they can also include other financial institutions. One lender acts as the lead bank or agent, takes a percentage of the loan and syndicates the rest of the loan to other lenders. Mechanics of a Syndicated Loan

Acting under the authority of the borrower, the lead bank (agent) solicits prospective lenders. As part of the origination process, the agent prepares a loan placement memorandum including borrower specific information which is then distributed to prospective lenders. The agent also takes responsibility for administration of the loan. The other lending banks are signatories to the loan agreement. Each participating bank usually funds the loan under identical conditions and documentation as other participants. The lead bank usually has an existing, ongoing relationship with the borrower. Therefore syndicated loans fall in that middle ground between "relationship" loans and public debt precisely because the lead bank has a relationship with the borrower. Liquidity in the Syndicated Loan Market

Corporate credit rating agencies such as A.M. Best and Dun & Bradstreet view syndicated loans as incremental business. As such, they now rate syndicated loans to major borrowers in a similar manner as they rate public debt such as corporate bonds. The rating of the syndicated loans of major borrowers has increased transparency and inspired institutional investors, such as mutual funds, to become major participants in syndicated loan funding thereby dramatically increasing liquidity in the syndicated loan market.

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SYNDICATED LOAN-GLOBAL APPROACH These changes in the syndicated loan market including increased volume capacity and increased transparency have shifted the syndicated loan market closer to the public debt, corporate bond market and further away from bilateral bank lending. Demand for Syndicated Loans
o

Demand for syndicated loans is driven primarily by borrowers rather than banks as it is the borrower who decides what type of debt instrument to use and it is the borrow that pays the transaction cost irrespective of the debt instrument. Bank interest in syndicating loans is attributed to less risk exposure. It is easier for a bank to absorb the risk of exposure to a small portion of a large loan than exposure to the total loan. Typically, successful small businesses evolve to the point where they outgrow their traditional bilateral borrowing relationships with one or a few banks. Yet, their debt financing needs are not of the magnitude to justify the cost and reporting requirements of entering the public debt market with the issuance of a corporate bond. The alternative to the corporate bond is a syndicated loan facility. Borrowers can access funds cheaper in the syndicated loan market than through a series of bilateral loans or by floating a bond issue. Syndicated Loan Advantages

In general, syndicated facilities bring companies reduced transaction costs in total and spare companies the time and effort of negotiating with individual bank. Borrowers also have great flexibility in shaping their syndicated loan. For example, companies can have prepayment rights without penalty and if engaged in international trade, they can have multi-currency options. Other Advantages

Syndicated loans give successful and growing companies excellent visibility in the open market. This spurs an increase in bank competition for a company's business, thereby reducing transaction costs. Banks, after becoming aware of a growing company's existence and growth potential, will try to establish a relationship with the company. One common bank practice used in wooing new customers is the dissemination of bank-sponsored market information, typically of a "proprietary" nature beyond the reach of the company in hopes of being recognized by company management. HOW TO EVALUATE SYNDICATION LOANS If a bank receives a loan application that it considers too large or too risky, it may process the loan as a syndication loan. A syndication loan is held by multiple lenders, known as a syndicate. This divides the risk of the loan between the lenders and reduces their total loss exposure. A syndication loan is usually held by a group of banks, but other large financial institutions can be lenders in a syndication loan. When a bank evaluates a syndication loan, it must review the credit risk of the borrower and the potential to divide the loan with other lenders. Instructions

1. Purchase your borrower's credit rating report from a third-party rating agency, like Moody's or Standard & Poor's. This report discusses the current financial status of the borrower and outlines its potential risks to lenders.

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SYNDICATED LOAN-GLOBAL APPROACH 2. Request a copy of the borrower's financial statements as part of its loan application. Financial statements are accounting statements that presents the borrower's current assets and liabilities, its annual income, and its net cash flows. 3. Review the borrower's net cash flows over the past. Compare the borrower's historic cash flow with the necessary monthly debt payments of your loan. Look for any interruptions in cash flow or market downturns in the company's income. These could prevent the borrower from making loan repayments in the future and increase the risk of the loan. 4. Review the borrower's assets for any potential sources of collateral. Collateral can include any cash, real estate, equipment or stock held by the borrower. If you do not think the borrower's cash flow is safe enough to support the loan, ask the company to use some of its assets as collateral. 5. Determine how much of the loan your bank is comfortable holding on its own based on your bank's risk standards. 6. Contact other banks, and ask if they would like to take a portion of the syndicate loan. Increasing the number of lenders taking on the loan reduces your total risk exposure but also reduces your total profit. 7. Decide on the loan division with the other banks and complete the syndication agreement. Present the completed loan to the borrower.

SYNDICATED FACILITY AGREEMENT A borrower initiates a syndicated facility agreement. A syndicated facility agreement, or syndicated loan transaction, is a type of contract European lenders use to simplify the borrowing process. The borrower, typically a business enterprise, uses one loan agreement rather than bilateral loans to cover both a group of banks and loan facilities. This kind of agreement makes the process more efficient. Facility Types
o

European lenders syndicate both term loans and revolving loan facilities. With a term loan, a lender can loan a specific amount over a period of time and a borrower can draw against the loan up to a facility limit, repaying in instalments. With the revolving loan, lenders may issue a revolving loan for a period of time, but the borrower may draw against, repay and redraw multiple times until the period ends. Parties to the Agreement

The syndication process involves multiple parties. The borrower initiates the process and appoints the lender to act as one of the arrangers for the deals. The arranger advises the borrower about different types of facilities, assembles a consortium of banks to provide the facility and negotiates terms and conditions. Stages

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o

The first group of lending institutions, or co-arrangers, agrees to grant a share of the proposed facility and proceeds to find additional lenders for participation in the facility. The additional lenders receive a share of the co-arranger's commitment.

Administering the Loan

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One of the banks that is a part of the syndicate acts as an agent for all of the lenders, but not the borrower. The agent serves as point of contact between the banks and the borrower, monitors compliance, and receives notices and principal and interest payments. What documents required for loan syndication? Last 3 years Audited Reports. Last 3 years ITR of Companies and all the Directors. Last 12 months bank Statement of all the banks where company is maintaining its accounts. Last 12 months bank Statement of all the Directors of all the accounts. Latest Sanction Letter. Property Documents which are to be mortgage. Debtors ageing as per bank norms. All the KYC documents. MOA and AOA of the Company. Shareholding Pattern on the Letterhead of the Company as on Date. Names and Address of the Directors of the Company as on Date. Debtors, Creditors, Stocks list as on date. Provisional Accounts, for unaudited period.

LOAN DEPOT The Loan Depot Inc was incorporated in Canada in October 1998 by a group of Finance and Real Estate professionals with experience in the Domestic and International Finance Markets and International Real Estate Hedge Markets for over 10 years. The main businesses of The Loan Depot are Domestic and International Finance, Loan Syndication from International Funding Agencies and Major World Banks, Project Financing, Real Estate Acquisition syndication and hedging. In 2000 the Corporation moved its head quarters from Ontario, Canada to Chattanooga, TN. In 2001, the company expanded its operations to include conventional and government guaranteed lending products. The Surviving Company is now know as "THE LOAN DEPOT, LLC", and is committed to provide the highest level of service to our customers, borrowers and brokers. Their Mission at The Loan Depot is to anticipate and successfully meet the changing needs of our client and match them with the requirements of the capital market. The standard of excellence is upheld through our innovative thinking, our unique competitive advantage, and
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SYNDICATED LOAN-GLOBAL APPROACH most importantly, our dedication to our client. Their goal is to provide you attractive financing options that will best serve your individual financing needs. They have successfully laid a firm foundation for financing a broad range of loans. They look forward to working with people and helping them in their business. They pride themselves in being one of the most innovative, diversified group of financial service companies in the United States and Canada and plan on staying that way. Loan Depot offers a number of custom services to help to achieve financial goals. Mortgages Loan Depot offers a wide variety of options for all mortgage needs offer the best rates and with over 150 products we specialize in self employed and not so perfect credit situations(i.e.: bankruptcy, divorce). Their programs include 100% financing for purchase or re-finance to consolidate debt or for investment purposes. Auto Loans Offer a variety of finance plans for the purchase or re-finance of new and pre-owned vehicles. Loans Loan Depot is a full service loan placement firm. They offer secured and unsecured loans available to people in every credit situation. Their rates are competitive and all situations are welcome. Recreational Vehicles Loan Depot offers financing on all recreational vehicles they offer competitive rates on boats, R.Vs and ATVs etc. Their programs allows to finance new or used purchase or to-re-finance the existing vehicle at a lower rate or better terms. Credit Cards Loan Depot offers a secure visa to help establish or re-establish credit with all the convenience and services one can access with a visa card. ICICI SYNDICATION

IC IC I Bank arranges foreign currency loans for corporates. Foreign Currency credit is arranged through commercial loans, s yndicated loans, bonds and floating rate notes, lines of credit from foreign banks and financial institutions, and loans from export credit agencies Backed b y a vast network of 8 overseas offices and over 700 correspondent banks, IC IC I Bank has an edge over others in its abilit y to arrange crossborder financing. With an established presence in all the major global financial centers and long experience in structured financing, IC IC I Bank is

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SYNDICATED LOAN-GLOBAL APPROACH strongl y positioned to offer financial solutions that suit the specific requirements of the client. They have a primary focus on Indian clients and can provide with insightful credit information and help to extract more value from the transactions. They are very active in granting and arranging various forms of External Commercial Borrowing (ECB) facilities for the Indian corporates. Syndication Desk at ICICI Bank IC IC I Bank has set up a dedicated s yndication desk in its International Banking Group in India to pursue s yndication business. The Syndication Group in India works in tandem with the Corporate Banking Relationship Managers to lease with the Indian corporates for arranging ECBs for them. IC IC I Bank has also formed s yndication teams in various overseas offices (USA, UK, Singapore and Bahrain). These teams consist of specialists who are veterans in international s yndicated loans market and have strong understanding of the Indian ECB market. International presence has not onl y increased ICIC I Bank's reach to the international investor communit y but also significantl y enhanced the underwriting capabilit y. Service Offering Providing foreign currency loans to the Indian corporates. Arranging / underwriting External Commercial Borrowings for the Indian corporates b y way of foreign currency loans, FRNs, bonds, etc. Participating in the international loan s yndications. Granting loans backed b y Export Credit Agencies. Consultancy services on the cross-border funding through variet y of sources. Arranging credit facilities / financial packages for overseas projects of the Indian Companies. IC IC I Bank services the financial sector for the entire set of banking requirements and provides a complete range of solutions. The Financial Institutions and S yn dication Group (FISG) are responsible for ICIC I Bank's relationship with the financial sector. Under this umbrella, the Bank caters exclusivel y to the needs of Domestic Financial Institutions. Banks. Mutual Funds. Insurance Companies. Fund Accounting.

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SYNDICATED LOAN-GLOBAL APPROACH The FISG has built strong relationships through various interactive measures, like seminars, training programs, sharing of market information and views with clients, organizing the Bank CEOs' Forum, etc.

The services provided to the clients are as follows:Transaction Banking The Bank delivers world class banking services to financial sector clients. Their current roaming accounts empower you with 'Anytime, An ywhere Banking'. They are designed for your convenience. Their comprehensive collection and paym ent services span India's largest CMS network of over 4,500 branches. They provide correspondent banking tie-ups with foreign banks to assist them in their India-related businesses. Loan Syndication The FISG is responsible for s yndication of loans to corporate clients. They ensure the participation of banks and financial institution for the s yndication of loans. Some of the products s yndicated are 1. Project Finance 2. Corporate Term Loans 3. Working Capital Loans 4. Acquisition Finance, etc. Sell Down:- IC ICI Bank is a market leader in the securitization and asset sell-down market. From its portfolio, the FISG offers different products to its clients in this segment. The products are: Asset-Backed Securities (ABS). Mortgage-Backed Securities (MBS). Corporate Loan Sell-down. Direct Loan Assignment.

Resources: - The bank also raises resources from clients, for internal use b y issuing a variet y of products, which run from certificate of deposit(CDs) to term deposits.

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SYNDICATED LOAN-GLOBAL APPROACH SYNDICATION ADVISORY AND OTHER SERVICES

IDBI has set up a separate department called 'Sourcing and Syndication Department' (SSD) to take up various investment banking services so as to provide all types of financial and advisory services to the companies for their project and expansion activities, raising funds from domestic and international market, growth plans by way of mergers & acquisitions, carbon credit activities etc. Important services offered by SSD are as under:

Debt syndication - Syndication of long term loan (Rupee loans as well as Foreign Currency loans), working capital loans, and non-fund based limits etc. Debt Syndication can be in form of structured loans, bonds/debentures etc. Equity syndication - Syndication of equity funds by way of strategic investment, private placement including with private equity funds, preferential allotment, Qualified Institutional Placement (QIP) etc. Public Issues / Right Issues - Managing Public Issues/Right Issues through Ibiss subsidiary viz., IDBI Capital Market Services Ltd. (ICMS). Merchant appraisals - Appraisal of projects including new projects, expansion, modernization, amalgamation/merger schemes which aids the companies to take a decision for investment. Merchant appraisals are also carried out for various projects in infrastructure sector for qualifying in the bidding process. Arranging funding for overseas acquisitions - Several corporate aspire to acquire units abroad to achieve their global business plans and require funds to acquire the stake in the units to be acquired. SSD arranges for such funds through its strong relationship with all banks and financial institutions. Acting as an Initial Public Offer (IPO) monitoring agency - As per guidelines of Securities and Exchange Bureau of India (SEBI), any IPO of the size more than Rs. 500 crore requires a financial institution to certify the end use of funds on semi annual basis. Offering advisory and other services for Mergers/Acquisitions - Advising companies in their plans of mergers/acquisitions including identifying target companies, undertaking financial due diligence, working out the financial projections, structuring of purchase consideration etc. Bank syndicates control the risk sector by downsizing the industry when market demand fails to meet the expectations The market for syndicated loans is huge. The standard forces for why banks join forces in a syndicate are risk diversification. The banks in the syndicate share the risk of large indivisible investment projects. Syndicates may also arise because additional syndicate members provide informative opinions of investment projects. The motive for syndication is to control the risk of the loan portfolio, rather than sharing the risk.

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SYNDICATED LOAN-GLOBAL APPROACH Syndicated loan services include structuring, arranging and underwriting of loan facilities. The syndicated market is one of the largest and most flexible sources of capital in the international finance marketplace.

GLOBAL APPROACH Regional Syndicated Loan Activity In the first half of 2012 total volume for US loans was $692.5 billion, 75.9% of the volume for the same period in 2011 including refinanced debt. Issuance was 90.0% of the same period in 2011 with 1,444 deals closing in the first half of 2012. Leveraged loan volume for the first half of 2012 was $293.4 billion, a decrease of 24.5% from the first half of 2012 including refinanced debt. 797 deals were issued in the leveraged loan market during the first half of 2012, 90.6% of the same period in 2011. Volume for the first half of 2012 in EMEA was $363.6 billion, a decrease of 38.3% from the first half of 2011. Issuance was 58.6% of the same period in 2011 with 505 deals. 538 syndicated deals were completed in the Asia Pacific exJapan region in the first half of 2012, totalling $158.8 billion. In comparison to the same period in 2011, the total volume dropped by 29.0% from $223.7 billion.

Industry Sector Syndicated Loan Activity The top three industries globally were Consumer, Noncyclical, Financial, and Consumer Cyclical which collectively accounted for 44.4 % of total deal activity year to date in 2012. The first half of 2012 the Consumer, Noncyclical was the leading industry in the US followed closely by Financial. The Financial Industry was the largest contributor accounting for 21.4% of syndicated loans in the Asia Pacific exJapan market for this period.

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SYNDICATED LOAN-GLOBAL APPROACH 2012 SYNDICATED LOAN REVIEW GLOBAL SYNDICATED LENDING UP 42% OVER 2010; BEST FULL YEAR SINCE 2007 Global syndicated lending for full year 2011 reached US$3.9 trillion, representing a 42% increase from the full year 2010. Annual lending activity during 2011 marks the best full year period for syndicated loans since 2007, which totaled US$4.8 trillion. Just over 8,700 transactions closed during full year 2011, an increase of 21% compared to 2010. FOURTH QUARTER GLOBAL LOANS DOWN 3% Fourth quarter lending activity totalled US$944.6 billion, a 3% decrease from the third quarter of 2011 but a 9% increase over the fourth quarter of 2010, when volume reached US$868.0 billion. US BORROWERS ACCOUNT FOR 49% OF ACTIVITY North America accounted for 54% of global loan volume during 2011 as lending in the region increased by 73% over the same period last year. Within North America, loan volume for United States borrowers totalled US$1.9 trillion, up 75% compared to the same period last year, representing 49% of global volume. Europe and Asia-Pacific accounted for 26% and 11% of global volumes as lending increased by 22% and 15%, respectively. Japanese fundraising totalled US$308.7 billion during full year 2011, an increase of 22%. YEAR-OVER-YEAR GROWTH IN EVERY SECTOR Borrowing in the energy & power sector totaled US$781.2 billion during full year 2011, accounting for 20% of global loan activity - an increase of 38% over 2010 levels. Every industry sector saw positive year-over-year growth, with loans in the retail sector registering a 78% increase over 2010. Energy & power, industrials, financials and materials accounted for 56% of full year 2011 syndicated loan volume. JP MORGAN TOPS BOOKRUNNER RANKINGS JP Morgan topped the rankings for global bookrunners, by proceeds, with US$411.9billion from 1,172 transactions during full year 2011. Bank of America Merrill Lynch followed with US$377.3 billion from 1,430 transactions, or 10.9% of overall loan proceeds during full year 2011. SYNDICATED LENDING FEES UP 47% According to Thomson Reuters/Freeman Consulting, fees from global syndicated loans totalled US$14.0 billion during full year 2011, an increase of 47% over this time last year

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SYNDICATED LOAN-GLOBAL APPROACH THE SYNDICATED LOAN MARKET IN 2011: A GAME OF TWO HALVES Syndicated lending in 2011 The global market for syndicated loans displayed a very different pattern during the first half of 2011 compared to the second half of the year, reflecting the marked turnabout in market conditions in the middle of the year. The first six months were characterised by rising volumes and falling spreads. This was not only the case in the EBRD region but reflected a global, upward trend that started when lending had bottomed out towards the end of 2009 (in the wake of the Lehman Brothers collapse a year earlier). In this period, pricing continued to decline for investment-grade credits, particularly in France, Switzerland and Germany. Indeed, many of the deals despite spreads that were considerably below banks funding costs ended up being oversubscribed. This attractiveness of tightly-priced and high quality credits should be seen in the light of the (mirage of?) spin-off business as well as the hope that increased USD funding costs would be a temporary affair and that in time these loans would be profitable. Refinancing continued to be significant (49 per cent of total lending volumes in 2011). Much of this refinancing was by high-quality borrowers that took advantage of a (still) favourable environment for good credits. Borrowers tried to lock in low spreads and long tenors in anticipation of a closing market, as the eurozone crisis had already started to deepen. Yet, this environment of high volumes and low spreads reversed quickly during the second half of 2011. The game-changer was the realisation by banks that the European sovereign debt crisis was not going to pass them by but, instead, had and still has the potential to damage their balance sheets badly. Together with the Basel III capital and liquidity requirements in some cases being brought forward by national regulators and market pressures in the same direction, this caused loan volumes to fall in the 2nd half of 2011. By the beginning of Q4, a number of banks were effectively closed for business in many countries and sectors. Q4 loan volumes recorded a 15 per cent decline compared to Q3 and dropped 16 percent when compared to the last quarter of 2010. Banks began to resist even blue chip clients demands for lower pricing. By July it had become clear that tight spreads on loans, even for top names, would not continue. With national (and therefore bank) ratings downgrades and potential defaults looming, many banks
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announced openly that they would focus on core markets and clients, making withdrawals from whole countries in the region. Other banks did not announce it, but it became apparent from their behaviour that they would also refocus.1 SYNDICATED LENDING IN 2012 The loan market in Emerging Europe and the SEMED region has suffered considerably during 2011, blighted by the on-going eurozone debt crisis and market volatility resulting from political and economic unrest in North Africa and the Middle East. The current regulatory environment is also adding to the banking industrys difficulties as the cost of capital continues to be an issue which banks need to address. An econometric analysis of the decline in syndicated cross-border lending after the Lehman Brothers collapse indicates that such capital and funding constraints indeed have a strong impact on syndicated lending flows. In particular, international banks that had to write down sub-prime assets, refinance large amounts of long-term debt in an illiquid market, and experienced sharp declines in their market-to-book ratio, transmitted these shocks across borders by reducing their syndicated lending. These banks restricted their lending especially to mid-tier corporate borrowers (typically with no or lower credit ratings). These results do not bode well for firms that depend on cross-border lending from Western European banking groups. The 2007-09 crisis merged almost seamlessly into the 2010-12 Eurozone crisis and the funding constraints that were central to the previous crisis are at the core of the current crisis too. Large and unexpected write-downs now stem from exposures to sovereign risk in the Eurozone periphery. In addition, banks are once more experiencing difficulties in rolling over maturing bonds. This suggest that both types of balance-sheet shocks will translate into substantial reductions in cross-border lending, hurting smaller companies with few alternative funding options in particular. Indeed, recent data indicate that while average pricing continued to fall for better credits in 2011, it rose sharply for weaker credits in the final quarter. Whilst much will hinge on the outcome of the Greek debt discussions, it is clear that the loan market will continue to be a difficult one in 2012, if only because of Basel III compliance requirements. These demands will drive banks towards shorter tenors, stronger structures, and higher spreads to compensate where the capital allocation is otherwise unattractive.

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Banks will also continue to focus on core countries and clients, which will make it hard for borrowers outside these core markets. While we have seen Russian banks begin to step into Ukraine and Kazakhstan, it is doubtful whether they can or want to substitute for the exodus of western banks from such markets. Chinese and Gulf banks (UAE, Qatar, Kuwait) have in principle the potential to be a strong source of USD funding, but have thus far not regarded corporate lending in the EBRD region as a core market. The causes for this are varied. Chinese banks tend to support projects with a Chinese national benefit and neither group of banks is ready to support small transactions for mid-tier corporates in a country where they do not have an active presence. As a result, the lack of credit appetite and the tightening of credit policies will mean that pricing will continue its upward trajectory in the remainder of this year.

SYNDICATED LENDING SOLUTIONS IN RAPIDLY CHANGING MARKET Over the past few years, the nature of syndicated lending has evolved, with a growth in global syndicated loan volumes, the rise of secondary loan trading and the development of new tools in the market, such as collateralized loan obligations and loan-only credit default swaps. In today's challenging lending environment, financial institutions need syndicated lending systems capable of supporting their ever-changing requirements, and delivering competitive advantage alongside reduced costs. They are looking for a loan processing system that can help them manage risk, improve operations and achieve ROI under difficult market conditions. Reducing Operational Costs and Risk: The Key Drivers Today's markets are characterized by margin pressure, increased competition and volatility. In this environment, companies are focusing on improving operational efficiency to enable them to cut costs; as well as looking to diversify risk and improve the transparency and control of their lending business. Loan IQ, an established syndicated lending software solution, has been proven to help clients reduce costs by up to 20% through the consolidation of systems and automation of workflows. Increasing Focus on Regulatory Requirements Today sees a heightened focus on lending compliance, with the emergence of new internal, government and industry regulations. Among these, Basel III, Dodd-Frank and FACTA all
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require financial institutions to manage and control risk on a real-time basis, across their entire organization. The challenge for syndicated lending software such as Loan IQ is to provide financial institutions with a comprehensive overview of their lending business, and the tried and tested tools necessary to manage their risk accurately, right across the company.

CONCLUSION

Banking sector has seen lot of transformation in the past post liberalization period, it has become very important for bank to give services best to their capabilities. if the customers are not satisfied with the services provided by the bank, they will transfer their account to some other bank. result is loss of revenue for the bank and the loss of goodwill.

New technology needs to be introduced in the banking sector as it is utmost clear that people are not only expecting normal banking services but they want to be as their business partners and help accordingly. Therefore, the bank has give more and more services to the people in order to have increased returns from fee-based function.

Professionalism is getting the key word in banking sector. People now expect the privatized banks to become more and more professional rather that of earlier years where the staff has no sympathy or understanding for the time value of the customer. People today demand more working hours, more services to be provided at no extra cost or minimum cost. this has led to more professional attitude by the banking people.

Perhaps the oldest form of services sector known to human is going through a radical change not only throughout the world but also in India. The greatest beneficiary of this change is none other than the human itself.

Expectations from the study are that it may contribute to the real scenario of loan syndication demand and accordingly the banks can go for new innovative schemes. It will also specify some recommendations and based on that banks can make suitable arrangements in a particular sector.

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BIBLIOGRAPHY www.goggle.com www.banknet.com BOOKS REFFERED

1) Syndicated Lending-: A Volume in Essential Capital Market ServicesANDREW FRIGHT. 2) Contributions Volume 3-: A Collection of Papers on Banking, Insurance and Finance. 3) The Book of Loan Syndication and Trading:- ALLISON TAYLOR

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