Finance structuring in loan syndication involves the designing and negotiating of a financing with the borrower by the lead arranger, commonly together with other members of the syndicate group, and setting tiers according to commitment amounts. Distribution involves identifying the banks and investors to invite to sub-underwrite the financing in primary syndication and/or lenders in general syndication and the marketing of the financing to those syndicate participants.
To initiate the organization of a syndicate, the borrower mandates one or more arrangers to form and lead the syndicate and arrange the financing. For a firm-commitment underwriting, lead arrangers typically provide the borrower some form of confirmation (commitment letter or letter of intent) in which they commit to underwrite the total amount of the required financing after obtaining the lead arranger mandate.
Lead arrangers may engage co-underwriters for the primary syndication of facilities and solicit lenders in the general syndication of the funding of the financing. The relationship between syndicate members – from participation to syndication closing – is regulated by a syndication agreement.
Depending on the syndication strategy, lead arrangers identify and decide which banks to invite to participate in the syndicate, the tiers according to the level of commitment (“ticket”), decide on titles according to tier, set fees for each tier, and determine each underwriter’s final hold.
MLAs typically discuss and agree the final structuring of the financing and the syndication strategy with the management group. The financing must be structured to reflect the terms and conditions that are acceptable and marketable to the co-underwriters and prospective lenders.