Syndicated Loan
What Is a Syndicated Loan?
A syndicated loan, otherwise called a syndicated bank facility, is financing offered by a group of lenders — alluded to as a syndicate — who cooperate to give funds to a single borrower. The borrower can be a corporation, a large project, or a sovereign government. The loan can include a fixed amount of funds, a credit line, or a combination of the two.
Syndicated loans emerge when a project requires too large a loan for a single lender or when a project needs a particular lender with mastery in a specific asset class. Partnering the loan permits lenders to spread risk and accept part in financial open doors that might be too large for their individual capital base. Interest rates on this type of loan can be fixed or floating, based on a benchmark rate like the London Interbank Offered Rate (LIBOR). LIBOR is an average of the interest rates that major global banks borrow from one another.
Figuring out a Syndicated Loan
In cases of syndicated loans, there is commonly a lead bank or underwriter, known as the arranger, the agent, or the lead lender. The lead bank might put up a relatively greater share of the loan, or it might perform duties, for example, scattering cash flows among the other syndicate individuals and administrative tasks.
The principal goal of syndicated lending is to spread the risk of a borrower default across numerous lenders or banks, or [institutional investors](/institutionalinvestor, for example, pension funds and hedge funds. Since syndicated loans will generally be a lot larger than standard bank loans, the risk of even one borrower defaulting could handicap a single lender. Syndicated loans are likewise utilized in the leveraged buyout community to fund large corporate takeovers with principally debt funding.
Syndicated loans can be put forth on a best-attempts basis, and that means that in the event that enough investors can't be found, the amount the borrower gets is lower than initially anticipated. These loans can likewise be split into dual tranches for banks that fund standard revolving credit lines and institutional investors that fund fixed-rate term loans.
Since they include such large aggregates, syndicated loans are spread out among several financial institutions, which mitigates the risk in case the borrower defaults.
Illustration of a Syndicated Loan
Syndicated loans are normally too large for a single lender to handle. For instance, the Chinese corporation Tencent Holdings Ltd., the greatest internet company in Asia and owner of famous informing administrations WeChat and QQ, marked a syndicated loan deal on March 24, 2017, to raise $4.65 billion. The loan deal included commitments from twelve banks with Citigroup Inc. going about as the organizer, commanded lead arranger, and book runner, which is the lead underwriter in another debt offering that handles the "books."
Beforehand, Tencent had increased the size of one more syndicated loan to $4.4 billion on June 6, 2016. That loan, used to fund company acquisitions, was guaranteed by five large institutions: Citigroup Inc., Australia and New Zealand Banking Group, Bank of China, HSBC Holdings PLC, and Mizuho Financial Group Inc. The five organizations together made a syndicated loan that incorporated a five-year facility split between a term loan and a revolver. A revolver is a revolving credit line, meaning the borrower can pay down the balance and borrow once more.
Features
- The borrower can be a corporation, a large project, or a sovereign government.
- A syndicated loan, or a syndicated bank facility, is financing offered by a group of lenders — called a syndicate — who cooperate to give funds to a borrower.
- Since they include such large aggregates, syndicated loans are spread out among several financial institutions to moderate the risk in case the borrower defaults.
