Loan Syndication

When a group of lenders collectively extend loan to a single borrower, using a similar terms and conditions, documentation etc administered by common agent, it is called a syndicated loan. The group of lenders is called syndicate. Generally, this loan is provided to corporations and government bodies because the amount to be lent is huge. Syndicated loans are primarily given by the banks, but these days a variety of investors are also involved in this loan lending institution

Debt is the cheapest form of external funding and is an important source of capital for most businesses. The most common forms of debt funding include bank loans, overdrafts, mortgages and equipment leases. We arrange and advance debt based funding in the form of Project funding, Working Capital, Industrial Rehabitation or Turn around Finance etc. on customized needs.

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PROCESS OF SYNDICATION

Once the need of credit has been realized by the borrower then it should contact with the bank or money lending institution which could itself lend some money and work as an arranger to form a syndicate for the borrower. To appoint an arranger the borrower sends a Mandate letter (also called as a commitment) letter to the arranger.

The content of mandate letter
  • An agreement to underwrite or use best efforts to arrange.
  • Titles of arrangers, commitment amounts, exclusivity provisions.
  • Duties of the lenders and conditions to their obligations.
  • Syndication issues (including preparation of an information memorandum, presentations to potential lenders, clear market provisions, market flex provisions and syndication strategy)
TERM SHEET

Before documentation, the terms related to financing or credit are included in term sheet. It is usually attached and signed with the Mandate Letter. Parties involved, their duties, roles and many important terms are included in it.

PROJECT DETAILS AND ESTIMATED CAPITAL REQUIREMENTS

The arrangers have responsibility of making a syndicate and help borrower get the credit. They should be aware of the details of the project. Like-background of the promoters in detail, promoters contribution to the project, details about the project report and progress of the project

INFORMATION MEMORANDUM

Generally prepared by both, the arranger and the borrower and is sent to the potential syndicate members. The arranger assists borrower in drafting this memorandum. They mention the important description about the borrower business (mentioned above) and details of proposed facilities. It is a confidential document and all potential lenders that wish to see it usually sign a confidentiality agreement.

The choice of sources of fund depends upon
  • Nature of the project.
  • Estimation of the cost of the project.
There are three types of sources of money
SHORT TERM FINANCE

When the funds are needed for 1 year. It can be made available by commercial banks, trade credit, public deposits etc.

MEDIUM TERM FINANCE

When the funds are needed for 1 year. It can be made available by commercial banks, trade credit, public deposits etc.

LONG TERM FINANCE
Preparation of Loan application

Arranger should make sure that the client company has complied with all the necessary formalities. If there are more than one creditors, the application will be filed with one development finance institution and the company or the arranger will deal with only one institution termed as ‘lead institution’ . The project will be appraised and sanctioned under ‘single window’ concept method of dispensing of credit.

Syndicated Loan Agreement

The loan agreement in which the detailed terms and conditions of the facility is made available to the borrower. The agents have to follow up the sanction of the loan amount by the lender. The Appraising Institute (who appraises the project) takes the matter to its board of directors or its office may put the proposal with full appraisal note before the sanctioning authority for according necessary sanction. Then the financial institution informs the applicant borrower of such sanction along with the detailed terms and conditional and arrangements of other lenders. The sanction letter mainly covers amount of loan, interest, commitment, charge security for the loan conversion option, repayment of loan etc.

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