Broadly there are three stages in syndication, viz., Pre-mandate Stage, Placing the Loan and Disbursement and Post-closure Stage. Pre-mandate Stage: This is the initiated by the prospective borrower.
For example, a transportation project, such as a high speed rail, may involve a group of investors and lenders, each specializing in a portion of the project, such as rail lines, cars, bridges and tunnels, and signal and control technologies. The whole group is referred to as a syndicate.
“One advantage of syndication loans is that this market allows the borrower to access from a diverse group of financial institutions,” said Tsui. “In general, borrowers can raise funds more cheaply in the syndicated loan market than they can borrowing the same amount of money through a series of bilateral loans.
What are the types of syndicated loans?
There are four main types of syndicated loan facilities: a revolving credit; a term loan; an L/C; and an acquisition or equipment line (a delayed-draw term loan). A revolving credit line allows borrowers to draw down, repay and reborrow as often as necessary.
A syndicate is a group of banks making a loan jointly to a single borrower. Several factors are responsible for the desire to share a large loan among several lenders, chief among them the banks’ need to achieve diversification in their loan portfolios.
Syndication Period means the period commencing on the Effective Date and terminating on the earlier of (a) the date that the Administrative Agent is satisfied that the syndication of the Commitments and Loans as contemplated by any separate letter agreement with respect to such syndication has been completed and (b) …
Why is LC necessary?
Letters of credit are indispensable for international transactions since they ensure that payment will be received. Using documentary letters of credit allows the seller to significantly reduce the risk of non-payment for delivered goods, by replacing the risk of the buyer with that of the banks.
What does syndicate mean in finance?
A syndicate is a temporary alliance of businesses that joins together to manage a large transaction, which would be difficult, or impossible, to effect individually. … There are different types of syndicates, such as underwriting syndicates, banking syndicates, and insurance syndicates.
Why do banks prefer syndicates?
Elements of a Syndicate Loan
The prime motive of syndicate lending is to distribute the jeopardy of a borrower’s default across multiple lenders like banks, institutional investors such as hedge funds or pension funds. … Syndicated loans are also used to fund large corporate takeovers with primarily debt funding.
syndication risk. The possibility (risk) that the underwriters will be required to absorb any unallocated amount of a syndicated financing in the event of insufficient lender/investor interest for successful syndication.