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A loan offered by group of lenders who work

together to provide funds for a single borrower


Borrower could be corporation , a large project,

or a sovereignty
A syndicated loan is one that is provided by group

of lenders and is structured , arranged, and administered by one or several commercial banks or investment banks known as arrangers.

NEED FOR SYNDICATE LOAN


o Corporate purposes including capital expendityre,

working capital, and expansion.


o Refinance

the existing recapitalisation.

capital

structure

and

o Providing funds for merger and acquisition.

DIFFERENCE BETWEEN LOAN & SYNDICATE LOAN


In a loan borrower directly apply for loan to

individual bank but in syndicate loan borrower apply loan to lead bank and lead bank arrange funds from different banks and from investor. Loan are applied for small fund and syndicate loan are applied for huge funds. Syndicate loan minimizes the bank loan but in loan risk is high. In syndicate loan fees are charged for risk and complexities as not in case of simple loan.

TYPES OF SYNDICATION
There are three type of syndication which are as follows :

Underwritten deal Best effort syndication Club deal

UNDERWRITTEN DEAL
o An underwritten deal is one for which the arrangers

guarantee the entire commitment then syndicate the loan. o If the arranger cannot fully subscribe the loan, they are forced to absorb the difference , which they may latter try to sell to investor. o Arranger maintains capital adequacy ratio to meet the fluctuation.

REASON FOR UNDERWRITTING LOANS


o Offering

an underwritten loan competitive tool to win mandates.

can

be

o Underwritten

loans usually require more lucrative fee because the agent is on the hook if potential lenders balk .

BEST EFFORT SYNDICATION


o A best-effort syndication is one for which the

arranger group commits verbally to underwrite less than the entire amount of the loan , leaving the credit to the vicissitudes (change)of the market.
o The best effort syndication were used for risky

borrowers or for complex transactions.

CLUB DEAL
A club deal is smaller loan usually $25-100 million but as high as $150 million.

SYNDICATION PROCESS
o The Syndication process starts from BANK BOOK.
o Bank

book include an executive summary , investment consideration , list of terms and condition , an industry overview , and a financial model. o The agent will set price or price range that will be offered to investor. o Once this intelligence has been gathered , the agent will formally market the deal to potential investor.

Contd
o Once total fund to be collected is known from

potential investor than market rates are decided on the basis of risk involved and complexities . o All the details regarding to bank and document required to the bank from company is given to company. o Loan is provided to the company.