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Loan Syndication

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What is general syndication?

The lead arrangers may go directly into a single-stage general syndication, rather than a two-stage syndication with sub-underwriting.  General syndication is the “retail” phase in…


What is firm-commitment underwriting?

In firm-commitment underwriting, one or more arrangers commit to provide to a borrower the total amount of a multilateral financing and then organize and syndicate the financing, r…


What is due diligence?

After mandates are awarded, mandated arrangers commit themselves to assemble a syndicate to arrange financing on the borrowers’ behalf, subject to satisfactory due diligence and do…


What is due diligence in loan syndication?

Due diligence is a detailed assessment of the borrower’s overall economic and financial position (e.g., the borrower’s creditworthiness, the risk involved in the loan and the suita…


What is due diligence in acquisition finance?

Acquisition financing provided on a certain funds basis is not subject to due diligence because the conditions precedent (CPs) to the initial drawdown (“initial utilisation”) canno…


What is credit risk?

Credit risk is the possibility of financial loss of a creditor (lender, lessor) arising from the failure of a debtor (e.g., borrower, lessee) to meet its financial obligation to pa…


What is CRE pre-completion financing?

An acquisition, development and construction loan is financing for the development of commercial real estate that is made available during a project’s construction phase, it allowi…


What is CRE post-development financing?

Long-term real estate financing commonly with a maturity of 30 years and longer is permanent financing, used to refinance construction or bridge loans on properties that have reach…


What is contractual subordination?

Contractual subordination is an arrangement where senior and junior loans are made to the same borrower (common debtor) but the senior creditor and junior creditor agree by contrac…


What is commercial real estate lending?

Commercial real estate (CRE) is any land or building used for commercial purposes, generally encompassing any real property other than a single-family residence or a residential lo…


What is collateral analysis?

Collateral analysis is the analysis of the ability of collateral to support a loan and the collateral proceeds to satisfy any remaining loan obligations.  Credit analysis incorpora…


What is allocation?

The final step in syndication is allocation, which is the amount of a facility assigned to each participant lender upon the close of general syndication.  Invitation letters genera…


What is a term sheet?

Prospective borrowers receive a term sheet in response to their invitations to bid.  A term sheet is prepared and submitted by interested banks to the prospective borrower (or occa…


What is a syndicate fee structure?

Borrowers pay various fees to participant lenders according to the syndicate fee structure, such as upfront fee, commitment fee, facility fee and letter of credit fee, depending on…


What is a spread flex?

The underwriting spread is the difference between the underwriting fee received by lead underwriters for the initial underwriting of the total financing amount and the amount of th…


What is a pricing grid?

Grid-based pricing determines loan pricing based either on the credit rating, the leverage ratio or any other agreed upon metric of the borrower.  A margin grid is a matrix used to…


What is a market flex?

Mandate letters for fully underwritten deals generally contain a market flex.  A market flex sets out the circumstances in which syndicate arrangers are entitled to unilaterally ad…


What is a mandate letter?

A mandate letter is a borrower’s written authorization to one or more banks to assemble a syndicate to raise the financing required by the borrower.  It outlines the basic loan ter…


What is a commitment letter?

After the mandate is awarded, borrowers commonly require a commitment letter.   The mandated lead arranger (MLA) acknowledges in a commitment letter (letter of intent) to assemble…


What is a club deal?

When the amount of financing required by a borrower is too large for a relationship bank to provide on its own, the club deal may be used.  In a club deal, a group (syndicate) of b…


What is a best-efforts deal?

In a best-efforts deal, the arranging bank agrees to use its “best efforts” or “commercially reasonable efforts” to market a financing facility to lenders and other investors, gene…


What is a best-efforts arrangement?

In a best-efforts deal, the arranging bank agrees to use its “best efforts” or “commercially reasonable efforts” to market and place financing with lenders and other investors.  Ge…


What form do ancillary facilities commonly take?

An ancillary facility available to the borrower up to a certain amount and for a given period to be drawn upon only in a certain contingency and on short notice, commonly under a l…


What fees are incurred post-syndication?

Where only upfront fees are earned by syndicate participants (underwriters/sub-underwriters and participant lenders), borrowers can incur numerous other fees, depending on the natu…


What fees are incurred on facilities?

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…


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