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Loan Syndication and Consortium Finance 1

Loan syndication involves a group of banks providing a single loan to a corporate borrower. A lead bank is selected to arrange the loan and place it with other participating banks. Syndicated loans are commonly used for working capital, project finance, mergers and acquisitions. While they allow borrowers to access lower-cost funding, they require coordination between multiple lenders. Consortium finance similarly involves multiple lenders jointly financing a single borrower with shared due diligence and documentation.

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9K views11 pages

Loan Syndication and Consortium Finance 1

Loan syndication involves a group of banks providing a single loan to a corporate borrower. A lead bank is selected to arrange the loan and place it with other participating banks. Syndicated loans are commonly used for working capital, project finance, mergers and acquisitions. While they allow borrowers to access lower-cost funding, they require coordination between multiple lenders. Consortium finance similarly involves multiple lenders jointly financing a single borrower with shared due diligence and documentation.

Uploaded by

sarah x
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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LOAN SYNDICATION AND

CONSORTIUM FINANCE
LOAN SYNDICATION
It is a loan extended by a group of banks
to a corporate borrower.
It is a single loan arrangement.
Lead bank will be selected by the group
of banks.
Usually term loans are provided.
Firm may avail the service of a merchant
banker to arrange for loan syndication.
Steps involved in loan syndication
Important roles in syndicated loans
Lead Manager: The lead manager is a
bank that is awarded the mandate by the
prospective borrower and is responsible
for placing the syndicated loan with the
other banks and ensures that the
syndication is fully subscribed. They are
entitled to the arrangement fee and
undergo a reputation risk during this
process.
………..
Participating Bank:  This bank
participates in the syndication by lending
a portion of the total amount required. It is
entitled to receive the interest and the
participation fee. But it, however, faces
risks such as: -
* Borrower credit risk
* Passive approval and complacency
Underwriting Bank: It is the bank that
commits to supplying the funds to the
borrower - if necessary from its own
resources if the loan is not fully
subscribed. The lead manager or another
bank may play this role. Not all
syndications are underwritten. The risk is
that the loan may not be fully subscribed.
Facility Manager / Agent: This bank
takes care of all the administrative
arrangements over the term of loan, e.g.,
disbursements, repayments, compliance.
This bank acts on behalf of all the banks
participating. This may be either the lead
manger or the underwriting bank.
Syndicated loans used for……….
Working capital credit (refinancing of small
lines of credit, etc.);
Export finance (including ECAs);
Capital goods financing (machinery, etc.);
Mergers & Acquisitions;
Project finance (SPVs, structured according
to cash flow);
Stand-by facilities;
Trade finance (Letters of credit, promissory
notes, forfaiting);
Guarantees (supply, service, etc.)
Advantages
Allows the borrower to access from a
diverse group of financial institutions.
Borrowers can raise funds more cheaply
in the syndicated loan market than by
borrowing the same amount of money
through a series of bilateral loans. This
cost saving increases as the amount
required rises
Disadvantages
 Each bank needs to come to an understanding of the
business and how its financial activities are conducted.
 A comfort level must be established on both sides of
the transaction, which requires time and effort.
 Negotiating a document with one bank can take days.
To negotiate documents with four to five banks
separately is a time-consuming, inefficient task.
 Staggered maturities must be monitored and
orchestrated.
 multiple lines require an inter-creditor agreement
among the banks, which takes additional time to
negotiate.
CONSORTIUM FINANCE
Under consortium financing, several
banks (or financial institutions) finance a
single borrower with common appraisal,
common documentation, joint supervision
and follow-up exercises, these banks have
a common agreement between them, the
process is somewhat similar to loan
syndication. 

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