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When do loans trade?

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Syndication closing when the total amount of a financing has been fully allocated, the loan price has stabilized and there is little risk of lender loss on the loans when they are free to trade in the secondary market.  This is when the syndicate breaks.

The syndication agreement typically prohibits participant lenders from front running for a limited period of time before the syndicate is brokenFront running is an activity undertaken by a syndicate participant to encourage any person other than a syndicate lender to take a facility interest prior to syndication closing, when the syndicate breaks.

In 2015, antitrust amendments were incorporated into mandate letters and the confidentiality and front running letter for primary syndication.

A front running prohibition typically restricts syndicate lenders from selling their loans without giving the other syndicate lenders the right to sell on a pro rata basis.  This protects the syndicate and avoiding chaos that would occur through the simultaneously sale of their loans at varying prices.

Once the facility agreement is closed, the loans are allocated and the syndication has been closed and “broken”, the investors are permitted to trade part or all of their loans in the secondary market at the “break price”.  Secondary sales start when investors are free to trade their loans without restriction in the secondary market.  By contrast, club deal syndication is closed when the facility agreements are executed (signed), without general syndication and without secondary market trading of the loan.

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