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Loan Syndication

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Why do real estate loan sellers perform due diligence?

Sale of real estate loans is difficult largely due to their lack of homogeneity and the due diligence process, which can be very inefficient, time-consuming and expensive for the p…


Who are the obligors in acquisition finance?

The syndication process is initiated by a sponsor.  The sponsor is the “Investors” that contribute “equity” in the form of equity capital (common or preferred) and/or shareholder l…


When is syndication launched?

The actual syndication process is initiated when bookrunners send invitation letters to prospective syndication participants.  Sub-underwriting is launched by bookrunners sending i…


When is acquisition transaction closing?

Not all facility obligors will be party to the agreement on the closing date.  Until the closing date, usually the only obligors are the parent and the acquiring company.  The targ…


When is a market flex exercisable?

The market flex is typically exercisable from the date of the signing of the mandate letter to the facility signing and syndication closing, on which date all the lenders subject t…


When do loans trade?

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…


When can interest margin change?

A margin flex allows bookrunners to unilaterally adjust to a loan’s margin during syndication to reflect a change in prevailing market conditions, to facilitate its successful synd…


When are syndicates organized?

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 sy…


When are syndicates established?

To establish a syndicate, one or more arrangers are mandated by a borrower to arrange the financing and organize and lead the syndicate.  The financing syndication starts with its…


When are commitment letters used?

In the US loan market, a commitment letter issued by the appointed lead arranger may be used instead of the term sheet and mandate letter to set forth the mandated lead arranger an…


What other fees are incurred post-syndication?

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…


What lenders perform due diligence?

The information memorandum provides a detailed description of the borrower, its business and financial condition and the proposed financing to be used by prospective syndicate part…


What is unsecured debt?

Unsecured debt is any type of debt that is not secured by any specified asset or group of assets in the event of the borrower’s default on its financing and that does not have any…


What is underpricing?

Underpricing occurs when the offer price to participant lenders in the primary syndication of a loan is lower than the loan’s break price in the secondary market.  Underpricing rew…


What is the underwriting spread?

In an underwritten deal, the lead arranger retains some amount of the underwriting fee as compensation for its services and uses the rest either as sub-underwriter or closing fees….


What is the syndication process?

As soon as a bank is awarded the lead arranger mandate, it prepares for the syndication of the financing.  The syndication process usually involves the following steps: Agreement a…


What is the syndicate fee structure?

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…


What is the reciprocity effect in loan syndication?

Lead arrangers commonly choose participants with similar lending specialization and borrower monitoring capability.  While the participant lenders “free-ride” on the due diligence…


What is the moral hazard in loan syndication?

Mandated lead arrangers are commonly the borrower’s main relationship lender.  Such relationship lending has a significant impact on loan terms and moral hazard towards syndicate p…


What is the moral hazard in loan syndication?

Mandated lead arrangers are commonly the borrower’s main relationship lender.  Such relationship lending has a significant impact on loan terms and moral hazard towards syndicate p…


What is the moral hazard in loan syndication?

Mandated lead arrangers are commonly the borrower’s main relationship lender.  Such relationship lending has a significant impact on loan terms and moral hazard towards syndicate p…


What is the LMA acquisition finance process?

In broad terms, an acquisition finance modeled on the LMA template Leveraged Document operates as follows: The mandated lead arrangers commit to provide the “certain funds”; Invest…


What is the information memorandum?

The information memorandum (info memo; [AE] bank book) is a detailed description of the borrower, its business and financial condition and the proposed transaction used by prospect…


What is the fee letter?

The fee letter is a private document between mandated lead arrangers and borrowers that identifies the type and amount of fees payable by the borrower with respect to a syndicated…


What is the certain funds provision?

The certain funds provision obliges lead arrangers to provide certain funding to the borrower in order to complete the cash payment of an acquisition within a specified amount of t…


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