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What is the syndicate fee structure?

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Borrowers pay various fees to participant lenders according to the syndicate fee structure, including upfront fee, commitment fee, facility fee and letter of credit fee, depending on the role on the participant.  A significant amount of bank income in the syndicated loan market comes from such fees.  To encourage lender participation in syndicated transactions, higher fees may have to be paid.

The fees syndicate participants receive and the interest on the loan are the sources of potential income.  Certain fees are shared among syndicate participants according to their role in the syndicate and level of participation in the financing.

Lead arranges receive an upfront fee for originating the financing, arranging the syndicate and underwriting the facilityCo-underwriters (sub-underwriters) earn part of the upfront fee received by lead arrangers, in proportion to their respective commitment.  Participant lenders commonly receive a closing fee in proportion to the amount of their loan in addition to the margin on the loan.  While arrangers (underwriters) are generally most interested in generating fee income, participant lenders are most interested in earning the margin on the loan.

Loans with a larger total share taken by participants with a borrower or lead arranger relationship are associated with a smaller lead arranger share, less concentrated loan syndicate structure, a lower loan spread, and a lower upfront fee.

– Li, 2017

Where a participant acts as the facility agent, the facility fee is earned.  If a participant provides a letter of credit together with a revolving facility, the letter of credit fee is also earned and not shared with other syndicate participants.  Lead arrangers commonly assume the roles of facility agent and ancillary lender in syndicated financing facilities.

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