Until a few years ago, the syndicated loan market in Germany only knew one direction of development: Year on year, the total volume of proceeds increased. Alternative financing options such as promissory note loans and the Mittelstand loan (which has since become discredited) at least temporarily halted this trend. However, there are still some arguments in favor of the syndicated loan as a financing instrument and it is therefore worthwhile to take a closer look at it.

Definition of syndicated loan

A syndicated loan is a loan that is granted to one or more borrowers by multiple lenders on a uniform basis.

The essential features of the syndicated loan are therefore

  1. more than one lender and
  2. Lending to uniform credit conditions .

Economical meaning

The syndicated loan is in the financing of companies ( ” Corporate Finance “) is still of enormous importance. The key explanation for this lies in the distribution of risk among several banks. Even the sole financing of small and medium-sized enterprises can pose too great a risk for a bank. This can be mitigated by distributing funding across multiple banks for a single bank.

On the other hand, the single syndicated financing also avoids the borrower having to borrow a large number of loans on different terms and negotiate with the lenders.

Alternative names

Alternative terms for the syndicated loan include syndicated, syndicated, syndicated, syndicated and metacredit. In particular, there is no difference between syndicated loan and syndicated loan .

A club deal is a special form of syndicated loan, characterized by the fact that credit volumes tend to be smaller and banks involved are mostly borrower’s home banks or banks designated by it.

A promissory note loan , on the other hand, is a loan similar to a loan, which is limited in terms of structuring (repayment options, maturity combinations, extension options, collateralization) compared to the syndicated loan and is usually only available to a limited number of potential borrowers (mostly creditworthy companies).

On the other hand, credit sub-participation (also called “risk-sharing”) is not a loan, but only an assumption of liability. The subcontractor does not act as a borrower but assumes responsibility for a borrower or some of the liability.

An ancillary line is also not a stand-alone loan but a branch under the syndicated loan and under its terms. Unlike the syndicated loan, however, it is not transacted through the agency but bilaterally between the borrower and the lender. In particular, it is used for credit lending in a currency that is not the currency of the actual syndicated loan.

Involved

The Arranger (Engl. “Arranger”) is the future borrowers with arranging commissioned the syndicated loan. The arrangement includes the structuring, syndication and documentation of the loan. The Arranger has regularly claim consortium to be and underlines this as regularly by taking over the largest proportion of the total syndicated.

The consortium represents the lender uniformly to the borrower. He is bound by the instructions of the lenders. The syndicate leadership can also be taken over by several banks.

The consortium is the totality of all lenders, also known as consortia. According to German law, they form a civil law company (GbR or BGB-Gesellschaft), §§ 705 et seq. BGB.

The agent (or facility agent ) assumes the function of a payment and communication office within the syndicated loan. Thus, all communications and payments between consortium and borrowers usually go through the agent. In particular, the acceptance of withdrawal requests of the borrower, the forwarding of information of the borrower to the lender and the receipt of interest and repayments are part of the duties of the agent. The function of the agent may coincide with the function of the consortium leader, but need not.

Real syndicated loan

real syndicated loan

In the case of a genuine syndicated loan, a centralized contract is concluded either with the consortium as GbR (“Außenkonsortium” – open syndicated loan) or the syndicate leader (“Innenkonsortium”). The receivables and liabilities are therefore “pooled”. The lead manager has extensive management and representation powers.

Wrong syndicated loan

The unreal syndicated loan, on the other hand, is not a single loan from the entire consortium but only a summary of several legally independent loan agreements of individual syndicate banks in one instrument. Legally, the receivables and liabilities remain with the underwriting banks and are not centrally pooled. The loan is settled via the syndicate banks themselves; the lead manager only acts as paying agent.

Procedure

procedure

The process of implementing a syndicated loan is divided into four phases:

  1. structuring
    (Development and vote term sheet, mandating arranger , internal loan approval arranger)
  2. syndication
    (Voting and invitation banks, internal credit approval banks)
  3. documentation
    (Creation and agreement credit agreement)
  4. graduation
    (Signing credit agreement, disbursement)

Structure

A big advantage of the syndicated loan is the relative flexibility of the structure. For example, in a syndicated loan, working capital loans can be combined with investment loans or acquisition loans. The structure of syndicated financing can be tailored directly to the needs of the borrower. The previous detailed analysis and advice of the borrower is thus of particular importance.

Syndicated loans are usually only possible from a volume of approx. EUR 20 million. Upwards, the volume is open in principle, but of course limited by the risk appetite of the banks involved.

Collateral and collateral pools

The collateral is based on the purpose of the loan tranches (collateral transfer of warehouses and cession receivables in the case of working capital loans, as security for capital goods in the case of investment loans for investment loans ) and the creditworthiness of the borrower. So synonymous unsecured syndicated loans are possible. Any collateral is jointly available through a collateral pool to all consortia.

Running time

running time

The term depends primarily on the needs of the borrower, but is also dependent on the risk appetite of the banks involved. Currently, the market maturity of 3 to 5 years called for subsequent transactions with renewal options (eg 3 + 1 + 1 or 5 + 1 + 1).

Fees and costs

The cost of a syndicated loan is divided into Arrangierungsprovision (structuring fee) for the Arranger, the participation fee for all cohorts (incl. The consortium leader), the Agency Fee for the Facility Agent and possibly the security agent shank commission for any additional security agent.

The specific amount of the fees depends in particular on the volume and structure of the syndicated loan, the difficulty of syndication, the number of participating banks and the amount of collateral.

Accounting

accounting

The syndicated loan is accounted for by the borrower under “Liabilities to banks” in one sum. It is therefore not clear from the balance sheet which claims are made on which consortiums.

Legal Basis

Legal Basis

In addition to the provisions of the German Civil Code (BGB) on the legal status of the consortium and the management, there are important regulations regarding reporting and reporting of syndicated loans as large and micro loans in the German Banking Act (KWG), the Capital Requirements Regulation (CRR) and the Large Loan and Million Loan Regulation (GroMiKV).

” Fronting ” is when a bank (the fronting bank) represents the consortaries in their own name but on behalf of others. (See above under “true syndicated loan” and “inside consortium”).

Underwriting means that the arranger (alone or together with other banks) guarantees the assumption of the outstanding loan amount if it can not be placed during the syndication. As a result, the borrower knows from the outset that the loan will come about in any case.

Best effort

Best Effort , on the other hand, means that the risk of non-existence of the syndicated loan remains with the borrower. For the final amount of the loan depends on the actually assumed consortium shares of the consortium.

advantages and disadvantages

Advantages:

  • relatively high lending volumes at uniform conditions
  • Summary of several individual credit lines at different banks
  • relatively easy and fast expansion of the banking community
  • Planning security through loan commitment and fixed margin / fixed margin grid for agreed term
  • Termination option Lender only if majority vote
  • a contact person for the customer (arranger)
  • Less time spent, because fewer individual negotiations
  • especially suitable for companies in growth phases
  • Equal treatment of all banks is ensured

Disadvantage:

  • higher fees compared to bilateral loans
  • Negotiation with banking consortium can mean worse bargaining position and thus higher margin
  • very detailed credit terms

You might also be interested in.

 

Close