Corporate Banking, Financial Advisory and Merchant Banking Services
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Name: Kalpesh Arvind Shah| Company Name: Antony Lara Enviro Solutions Pvt Ltd
Designation: Dy. General Manager Finance & Commercials (Corporate)
Batch: AMP 2017-18|Roll No: 1 (One)
Subject: Corporate Banking, Financial Advisory and Merchant Banking Services
Topic: Roles and responsibilities of different players in Syndicated Loans
Introduction:
Syndicatedloanisa formof loan businessinwhichtwoormore lendersjointlyprovide loans forone or
more borrowersonthe same loantermsand with differentdutiesandsignthe same loanagreement.
Usually,one bankisappointedas the agencybank to manage the loanbusinessonbehalf of the
syndicate members. Syndicatedloansofferlucrativebusinesstoinvestmentbanks.Disbursedbyagroup
of lenderstospreadtheirrisk,syndicatedloanshave seenasteadyrise overthe pastfive years. Apart
fromprovidingcertaintyof closure andimmunityfrommarketvolatility,syndicatedloansalsoprovide
an easypitchfor newbanksinthe countryto start theirbusiness. Syndicatedloansare steadily finding
favorwithmany debt-ladenIndianfirmswhichwantlarge sums of money tofinance new projects but
cannot raise funds throughequities. Some cannotraise money throughbonds forlackof a suitable
creditrating. Apart fromprovidingcertaintyof closure andimmunityfrommarketvolatility,syndicated
loansalsoprovide aneasypitchfor newbanksinthe countryto start theirbusiness.
The income generatedfromarrangingsyndicatedloansnow accountforalmosthalf of the country’s
investmentbankingrevenue,unlike inmajoreconomieswhere debtcapital marketandmergersand
acquisitions(M&A) accountforbulkof the fees.Disbursed by agroupof lenderstospreadtheirrisk,
syndicatedloanshave seenasteadyrise overthe pastfive years,accountingforalmost50% of India’s
investmentbankingrevenuein2016-17 despite aweakeconomythatiseatingintothe share of other
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businesses.Income fromsyndicateddealshave risenalmost60% in five yearsand33% overthe year-
ago period. InIndia,underwriting,typicallycarriedoutbyinvestmentbanks,hasbeenone of the highest
payingactivitiesinabsolute termsbutsyndicationbusiness asapercentage of the overall fee income
has alsobeenrisingsharplyoverthe yearsowingtoa poorequitymarket. While fluctuationsinincome
fromotherbusinesses,apartfromloansyndications,are mainlydue tovolatilityinthe equitymarket,
bankersattribute lowercreditratingsof Indianfirmstobe one of the mainreasonsfor higherdemand
for syndicated loans. Tobe sure,firmsthatavail of syndicate loansalso mustpaya higherfee tothe
bankers.
Features
1. Large amountand longterm. It can meetborrowers'demand forfundsof longtermand large
amount.It isgenerallyusedfornew &large projectsloans,large equipmentleasingand
enterprises'Merger& Acquisition financingininfrastructureprojects, large shipping&logistics
projects, multi modal transportation projects,Hi-TechProjects, Petrochemical SetUps,Network
& Telecommunication Projects, PowerSector,MiningSectorandotherheavyandmedium
industries.
2. Lesstime and effortforfinancing.Itisusuallythe responsibilityof the arrangerfordoingthe
preparationworkof establishingthe syndicateafterthe borrowerandthe arrangerhave agreed
on loantermsby negotiation.Duringimplementationof the loans,the borrowerdoesnotneed
to face all membersof the syndicate,andrelevantwithdrawal,repaymentof principal with
interestandothermanagementworkrelatedtothe loansshall be fulfilledbythe agencybank.
3. Diversifiedapproachestosyndicatedloans.The same loansyndicationscaninclude manyforms
of loans,suchas fixed-termloans,revolvingloans,standbyL/Cline onrequirementsof the
borrower.Meanwhile,the borrowercanalsochoose USD,EUR, GBP and othercurrencyor
currencyportfolio,if needed.
4. It can helpborrowersestablishagoodmarketimage.Successful establishmentof the syndicate
comesfromthe participantsfull recognitionof the borrower'sfinancialandoperational
performance,bywhichthe borrowercanbuilduptheirreputation.
Item Syndicated Loan
Inter-bank
Relationship
All members join to contact with borrowers through lead and agency banks.
Approval of Loans
All banks make loan decision based on the information memorandum provided by the
lead bank
Loan Contract Unified contract
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Currency: Syndicatedloanmainly adoptsINR.Besidesit,USD,EUR, GBP and othercurrenciesare also
available.Multiplecurrenciescanbe usedina single syndicatedloan ondemandof the borrower.
Term: Three to five yearsforshort-term,seventotenyearsformedium-termand10-20 years forlong-
term.
InterestRate: The price of syndicatedloanis composedof loan interestand fees.Lendinginterestrate
shall be set,accordingto differentborrowers,inlinewithlendinginterestrate policiesof the Reserve
Bank of India, lendinginterestrate regulationsof Reserve Bankof Indiaandprovisionsof the syndicated
loancontracts.
Charges: Chargesmainlyincludearrangementfee,underwritingfee,agencyfee,commitmentfee. The
income generatedfromarrangingsyndicatedloansnow accountforalmosthalf of the country’s
investmentbankingrevenue,unlike inmajor economieswhere debtcapital marketandmergersand
acquisitions(M&A) accountforbulkof the fees.
Target Customers
1. Borrowerswhorequire long-termandlarge-amountloan.
2. Borrowerswithhighreputationinthe industry,whose operationabilityas well asfinancial and
technical strengthare recognizedbymostbanks.
ApplicationQualifications
1. The borrowershouldbe the legal personsof enterprisesandpublicinstitutionsaswell asother
economicorganizationsapprovedandregisteredin India.
2. The borrowermustbe qualifiedforbasictermsandconditionsonthe borrowersof LendingGeneral
Provisions aswell ascreditingmanagementpolicyissuedbythe ReserveBankof India.
3. The borrowershall meetrequirementsof certainlevel aftercreditratingbythe Reserve Bankof India
or otherrecognizedratingagency;
Loan Terms
(interest rate, term,
guarantee type)
Unified conditions
Loan Disbursement Funds are collectively transferred in agreed proportions via the agency bank.
Loans Management In the charge of the agency bank
Recovery of Loan
Principal and
Interest
The agency bank is responsible for the collection of principal and interest according to
the contract and transfer of relevant amounts to designated account of each bank in
lending proportions
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4. The borrowershall be large andmediummanufacturingenterprisesorprojectcompanieswithsound
operationandfinance aswell asstrongcompetitioninrespective industries,which shall be promisingin
the development.
5. The borrowerhasestablishedaregularandsoundpartnershipwithBankingpartners.
6. In the eventof joiningthe syndicate setupbyotherbanks,the arrangerbank shall be a policybank,
state-ownedholdingbankorforeignbankwithsufficientcreditandoperational strength.
RequiredDocuments
1. Relevantinformationonthe borrowerandtheir Indianandforeignshareholdersandguarantors;
2. Businesslicenseandarticlesof associationof the borroweraswell asjointventure orcooperation
contracts of foreign-fundedenterprisesandinlandassociatedenterprises;
3. Projectproposals,feasibilitystudyreports,engineeringestimatesandotherdocumentsapprovedby
governmentdepartmentsand approval documents, aswell ashe approval documentsonthe project
providedbyadministrationsof taxation,environmentalprotection,andcustoms;
4. Purchase contracts, constructioncontracts,supplyandsale contractsof projectequipment.
5. Other documentsorinformationneededbythe bank.
Process
1. The salesaccountmanagerof LeadBanker of Syndicate paysattentiontothe financingdemandsof
customers;
2. Receive loaninformation/financingtenderdocumentsof customers;
3. Negotiate withcustomers todraftof the listof loantermsand financingstructure;
4. Lead Banksis officiallyappointedbythe syndicate groupof banksandthe principal underwriting
bankof syndicated loans;
5. Confirmationof the loanamountby Syndicate;
6. Determinationof preparationschedule,organizingstrategyandinvitationlistof syndicates;
7. Prepare loaninformationmemorandumandletterof syndicate invitation,andsendout
the invitation torelevantfinancial institutions;
8. Subscriptionamountundertakenbyparticipants;
9. Confirmationof the final loanlimitof eachloansyndicationparticipant;
10. Partiesagree tosignthe loan agreementandguarantee agreement.
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11. Signagreements;
12. Work of the agencybank.
Roles and responsibilities of different players in Syndicated Loans
Businessof syndicatedloanmainlyinvolves Arranger, LeadBank, Manager, Participant, AgencyBank,
Coordinatorandothermembers,whowill performthe duty,enjoythe rightandassume the risk
accordingto the contract or theirrespectivelending proportion.Syndicate memberbanksare divided
intothree mainlevels:first,arranger(leadbank);second,manager;third,participants.
1. The arranger:
Responsible fororganizationandarrangementof the syndicatedloan,isabankor bankswhich
undertake preparationof syndicateanddistributiononcommissionof customers.The arranger
usually will underwrite the whole issueof syndicatedloan. The leadarranger,orthe mandatedlead
arranger (MLA),isthe investmentbankorunderwriterfirmthatfacilitatesandleadsagroupof
investorsinasyndicatedloanformajorfinancing.The leadarrangerassignspartsof the new issue
to otherunderwritersforplacementandusuallytakesthe largestpartitself.Itisalsocalleda
managingunderwriterora syndicate manager.The arrangeris paideitherthroughanarranger fee,
throughskimmingorthroughstructuring fees.In Europe the termmostusedis the mandatedlead
arranger,theygenerallyhave the leadingrole inthe financingstage of a project.The arrangeroften
underwritesthe financing,thenhandlessyndicationorbuildsupagroupto underwrite the full
amountand syndicate.Asarequirementof itsmandate fromthe projectsponsor,the MLA will be
committedtoraise the complete debtfinancing,which foramajorprojectcouldbe many hundreds
of millionsof dollars.But,commercial lenderstypicallydonotwantto take more than a small part
of the debtfora projectandwill wantto passsome of the debt,andhence some of the risk,to
otherlenders. The processof sellingthe debtiscalledsyndication. Inlarge dealswithmultiple
tranches,there maybe an arranger for all,or there maybe a separate arrangerforeach tranche.
Duringthe syndicationprocessone of the banksmayfulfil the role of bookrunner.Thisrole of the
bookrunneris simplytokeeparecord of how much debteach of the potential syndicationbanks
wantsto take.
2. The Lead Bank:
Underwritesalargershare of the syndicated loan,rankingthe highestamongmanagers.
Usually,the leadbank isalsothe arranger. A leadbankisa bankthat overseesthe arrangement
of a loansyndication.The leadbankispaidanadditional fee forthisservice,whichinvolves
recruitingthe membersandnegotiatingthe financingterms.Inthe Eurobond market,the lead
bankacts inan agentcapacity foran underwritingsyndicate."Leadbank"canalsoreferto an
investmentbankthatmanagesthe processof underwritingasecurity.Inthissense,the bank
can alsobe referredtoas a leadmanageror managing underwriter.A thirdmeaningof thisterm
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issimplythe primarybankof an organizationthatusesseveral banksforseveraldifferent
purposes.
3. The Manager:
Referstothe positiongrantedbythe leadbank accordingto loan amountandlevel undertaken
by eachbank inthe syndicatedloan withlargeramountandmore participants. It'sa bank
responsible forestablishingsyndicate duringthe preparationstage.The managers,forming
managerboard of the syndicate,are mainlyresponsiblefororganizingthe examinationof loan
projectsandfeasibilityof syndicateestablishment,discussingloandocumentswiththe lead
bankand finallysigningthe loancontract. Followingare hiskeyfunctions&roles1) Maintain
deal pipeline toensure accurate reportingof all activityandespeciallyopenunderwriting
positions.Monitormarkettrends,utilizinginternal andexternal resourcesto 2) maintain
detaileddatabasesof keymetricsof comparable loansand 3) provide supportforthe
preparationof pricinganalysesandreports.Prepare underwritingproposals,involvingdetailed
creditand marketanalysis.4)Prepare loanmarketcommentary&analysisdistributedinternally
on a weeklyandmonthlybasis.5) Helpprepare &review informationmemoranda,bankmeeting
presentations andmarketingmaterialsrelatedtothe executionof transactionsinthe market.
6)Assistinthe analysisandreview of legal documentsandcontracts,aswell asinteractwith
counsel inreviewingsuchdocuments, toensure consistencywiththe offeringmaterialsandthe
proposals.7) Loan investorcoverage,includingbanksandinstitutional investors.8) Workwith
Loan Tradingand PortfolioManagementonoptimizingsecondaryloanexecutionforthe various
portfoliobookswithinBank.9) Identifyloaninvestors forprimarytransactionswhere Bankis
Lead Arranger.10) Provide relationshipmanagersandriskteamswithpricingfeedbackonclient
loansand loansinworkout Regulatoryandcompliance obligationsincludingsupportingthe
onboardingof tradingcounterparties,KYC&AML, properdocumentationof all trades, etc. 11)
Monitor& supportthe closingof loantradesto ensure timelysettlementof trades
4. Participants:
Refertothe banks whoaccept invitationof the arrangertojointhe loansyndicate andprovide
loansaccordingto sharesdeterminedthroughnegotiation.Differenceswiththe managers:Less
loansubscription,assume noresponsibilityforundertakingandother practical preparationof
the syndicate. Participantsdiscusswiththe banksWorldHealthOrganizationsettleforinvite of
the arranger to hitchthe loansyndicate andsupplyloansconsistentwithsharesdetermined
throughnegotiation.variationswiththe managers:Lessloansubscription,assume no
responsibilityforenterprise andalternativesensible preparationof the syndicate
5. The AgencyBank:
Is selectedbysyndicate membersandapprovedbythe borrowerduringthe loanperiod.After
signingthe loanagreement,the agencybank,onbehalf of syndicatemembers,isresponsiblefor
withdrawal,repaymentof principalwithinterest,post-loanmanagementandotherissues
on loanmanagementaswell ascommunicationbetweensyndicate membersandthe borrower,
handlingcontractbreach,etc.in the lightof termsof the loanagreement.
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6. The coordinator referstothe bank,selectedfromleadbanks,tosupervise the whole syndicated
loanand to partiallyundertakenpreparationtasksof the banksyndicate.
7. The organizerrefersto the bank,designatedfromleadbanks,tosupervise the complete
syndicatedloanandto part undertakenpreparationtasksof the banksyndicate
8. Consultantrefers to the bankappointedbythe borrowerduringthe syndicatedloanperiod,
whichprovidespaidfinancial advisoryservice forthe borrowertomake correct loandecisionin
face of variousquotationsandloantermsprovidedbyotherbanks tofacilitate all the loanwork.
advisorreferstothe bank appointedbythe recipientthroughoutthe syndicatedloanamount,
that providespaidmonetaryconsultingservice forthe receiverto formcorrect loancall inface
of variedquotationsandloantermsprovidedbyalternativebanksthusonfacilitate all the loan
work
Conclusion:
In the performance of their respective tasks and duties all participants are expected to conform to the
following:
Perform quality work within determined timeframes and regulatory frame work
Interact professionally with other employees, customers and vendors within terms & conditions
agreed by Syndicate forum
Work effectively as a team contributor on all assignments and finalizing and executing the terms
Work independently while understanding the necessity for communicating and coordinating work
efforts with other participants, employees, departments, divisions, etc.
Work on additional parameters for mitigating the risks, work on assignments thoroughly on
analysis and Checks & Controls as needed.
Responsible for:
Structuring, distributing, and administering loan transactions to streamline the syndication
process and generate fee income.
Evaluating new customer relationships to determine ability to lead transactions and manage
overall underwriting / market risk.
Maintaining banking relationships with a variety of financial institutions.
Facilitating loan purchases and sales on secondary market.
Meeting with current and prospective customers to discuss loan syndication opportunities and
strategy.
Managing the bank agency role on existing loan transactions. Ensures all agency duties are
performed including communication and document distribution.
Negotiate large, syndicated loan transactions in conjunction with the relationship management
teams. Make recommendations on terms and conditions to win the business and execute a
successful syndication.
Create and distribute market updates and commentary to commercial teams. Incumbent needs to
have the ability to discuss and analyze interest rates, economic data and market movements with
internal and external customers.
Work with Credit Risk to determine appropriate hold levels, concentration management,
underwriting risk, reputational risk and overall client/portfolio strategy.
Manage inter-Bank relationships, including legal documentation (participation and/or inter creditor
agreements).
Manage existing agented transactions to ensure all Lead Bank duties are fulfilled and customer
experience is exceptional.
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Work with other banks to determine deal interest and supply/demand in the marketplace. Decide
on best banks to execute with based on prior experience, market knowledge and analysis of
counterparty risk.
Determine risk-return strategy, define the need to underwrite vs. arrange a transaction, and what
“market clearing” terms and conditions are.
Adheres to compliance procedures and internal/operational risk controls in accordance with all
applicable regulatory standards, requirements, and policies.
Source and Reference:
https://en.wikipedia.org/wiki/Syndicated_loan
https://www.investopedia.com/terms/s/syndicatedloan.asp
https://economictimes.indiatimes.com
https://rbi.org.in/scripts/publicationsview