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Loan Syndication

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What are PD and EAD in expected loss?

Probability of default (PD) represents the risk, expressed as a percentage, that a debtor (borrower, lessee) will default in the coming 12 months, determined by evaluating the debt…


What are original borrowers and original guarantors?

Original borrowers and original guarantors are the signatory borrowers and guarantors at the date of the execution (signing) of the facility agreement.  In jurisdictions where it i…


What are original and new lenders?

A party that commits to advance (lend) to a borrower an amount of the total funding of a facility is a lender.  An original lender is a signatory lender and original contractual pa…


What are material companies?

LMA agreements assume that all borrower subsidiaries are original borrowers and original guarantors (i.e., obligors), which may be of particular concern when a borrower has a large…


What are loan syndications?

Syndication is a multilateral financing arrangement in which one or more originating commercial or investment banks arrange financing on a borrower’s behalf by obtaining the commit…


What are lead arrangers?

Loan syndication starts with the borrower awarding the mandate to one or more arrangers to syndicate the financing.  The lead arranger is a commercial or investment bank that is ma…


What are high-yield bonds?

Bonds and notes have been a staple of leveraged finance in the United States since the early 1980s.  They are high-yield (speculative‑grade), with an S&P’s or Fitch rating of B…


What are finance parties?

In a facility agreement, the finance parties are the parties that are designated as agent, arranger(s) and lenders. “Finance Party” means the Agent, the Arranger or a Lender. – Loa…


What are facility commitment fees?

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 are due diligence reports?

Due diligence reports serve as a key source of information for investors in acquisition finance transactions, used to prepare financial models that project the performance of the t…


What are contractual obligors?

Any person that incurs an actual or contingent obligation towards another person is an obligor, which includes borrowers and guarantors.  The party (individual or organization) tha…


What are confidentiality papers?

Before sending the information memorandum and any other confidential information to prospective lenders/investors, the MLA and borrower must receive from them a signed confidential…


What are certain funds?

In accordance with the UK City Code on Takeover and Mergers (the “Takeover Code”), the bidder for a target company in a UK public takeover must prove that it has “certain funds” av…


What are borrower concerns with loan sales?

Term and revolving loans are generally treated differently in terms of transferability.  With term loans, once they are fully drawn down, borrowers are not at risk of the lenders’…


What are ancillary lenders?

If a letter of credit facility is included in leveraged facilities, the bank or banks that are to issue letters of credit are issuing banks.  The letters of credit are fronted by o…


What are ancillary facilities?

An ancillary facility is a separate facility provided on a bilateral basis in a multilateral structured financing for additional financing or hedging in place of all or part of the…


What are affiliated companies?

A parent company is an entity that owns or controls one or more other companies (subsidiaries), typically through the ownership of 50% or more of the voting rights.  The designatio…


What agents are engaged in syndicated lending?

An agent is the bank or other financial institution that is responsible for administering a loan and acting as a conduit for all payments over the loan term. The agent in a syndica…


How is the lead arranger mandate awarded?

Prospective borrowers commonly seek the arranger for their syndicated facilities.  Where a borrower desires competition for the position of lead arranger and competitive bidding, a…


How is REF investment finance subordinated?

Real estate investment finance commonly uses structural subordination (senior/mezzanine structure), with each Obligor being increasingly removed from the properties.  The senior lo…


How is REF investment finance structured?

The LMA REF Document is used to invest in real estate in the United Kingdom and not for the development of property.  It assumes that the obligors are companies incorporated in Eng…


How is REF investment finance secured?

Credit assessment of REF investment facilities is based primarily on the loan to value of the real estate properties and the income the properties generate.  Therefore, the special…


How is REF development finance structured?

The LMA REF Development Document is used for transactions in the United Kingdom and solely to acquire and develop property.  It assumes that the obligors are incorporated in Englan…


How is REF development finance secured?

For LMA REF development financing, security is granted in favor of the Security Trustee for the Lenders and, if any, the Hedge Counterparties.  A REF development transaction Securi…


How is mezzanine debt subordinated?

While in the US market, mezzanine finance is typically provided by means of high-yield bonds, in Europe it is usually a senior loan facility secured on a second-ranking basis to th…


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