If the lead arranger provides a letter of credit together with a revolving facility, as is commonly the case in leveraged finance (e.g., acquisition finance or project finance), a letter of credit fee is also charged on the drawn letter of credit.Â The letter of credit is typically provided by lead arrangers as an ancillary facility.
The facility fee is an annual fee based on the number of participating banks payable to the agent bank on the total amount of a facility, whether drawn or undrawn, as compensation for the administrative work carried out under the facility agreement.Â When also acting as the facility agent, as is commonly the case, the facility fee is earned by the lead arranger.Â Administrative agency fees (facility and securityagency fees) are commonly payable either on the closing date or upon the first drawdown and then quarterly thereafter.
Ignoring various fees that a borrower has to pay will miscalculate the total earnings that a bank can generate from each dollar of lending.â Francis, Iftekhar & LiuLing, nd
A legal fee will be paid to legal counsel incurred in the negotiation of the documentation, obtaining legal opinions, and in taking any subsequent action under the agreement, subject to these being reasonably incurred and to any agreed caps.Â The borrower is expected to pay the legal fees incurred by the arranger or agent bank.
Where the financing is secured, a security trustee fee is collected by the facility agent on secured syndicated loans and payable to the security trustee.Â This is common for all but investment gradefacilities.