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  • 1.Syndicated Loans

2. JLR, which was acquired by Tata Motors from Ford Motor for $2.3 billion in March 2008 In Oct. 2009, it secured 500m of new finance, including a 175m loan with the State Bank of India. The company has also won a $90m (57m) export financing facility with ABC International Bank. The remaining funding has been made with Standard Chartered, Bank of Baroda, and Burdale Financial Limited, a subsidiary of the Bank of Ireland Syndicated Loan 3. Syndicated Loan - Definition

  • A syndicated facility is a lending facility, defined by a single loan agreement, in which several or many bank participate

4. Why Syndicated Loan?

  • A borrower wants to raise relatively large amount of money quickly and conveniently
  • The amount exceeds the exposure limits or appetite of any one lender
  • Borrower does not want to deal with a large number of lenders

5. Syndicated loan - market

  • One of the largest markets
  • Most flexible market
  • Size
      • 1980 - 88 bn
      • 1989 - 736 bn
      • 1999 - 1800 bn
      • 2004 - 3200 bn

6. Global Syndicated Loan Markets

  • Category of borrowers
    • Coporates 75%
    • Financial institutions 20%
    • Others5%
  • Regionwise
    • USA 60%
    • EUROPE 30%
    • Asia Pacific 5%
    • Others 5%

7. Global Syndicated Loan Markets

  • Market & Centre
  • US Market- New York
  • European Market - London
  • Asian Market Hong Kong

8. Syndicated Loan - Features

  • Two or more banks (the syndicate of Lenders)contractwith a borrower to provide credit on common Terms and conditions Governed by a common document.
  • Multi-bank transaction, each bank acting severally.
  • Although common documentation, a bank has ultimately,the individual right to take legalaction against borrower

9. Syndicated Loan - Features

  • Interest usually accrues at a variable or floating rate andis reset periodically, at agreed intervals, usually at borrowers choice.
  • Usually of medium term maturity, 3-10 years.Banks participate on common terms and conditions, but not necessarily in equal amounts

10. Lead bank/Manager Bank C Bank B Bank A Borrower Under writer 11. Lead Manager

    • The bank that is awarded the mandate by theprospective borrower
    • It is responsible for placing the syndicatedloan withother banks and
    • It ensures that the syndication is fully subscribed
    • Eligible for arrangement fee

12. Underwriting bank

  • Bank that commits to supplying the funds to the borrower if necessary from its own resources if the loan is not fully subscribed
    • Risk factor
    • Loan may not be fully subscribed
    • Not all syndicated loans are underwritten

13. Participating bank

    • The bank that participates in thesyndication bylending a portion of the total amount required
    • Interest income and participation fees

14. Participating bank

    • Risks
      • Credit risk of the borrower normal
      • Participating bank may be led to into passive
      • approval and complacency
      • (when many high profile banks cannot be wrong?)
      • Funding risk: mismatch of inflows and outflows

15.

  • Dealing with single bank - Single contact
  • point & Single set of documents
  • Access to large amount of funds
  • Sophisticated investor base

Advantages to the Borrower 16.

  • Relatively lower price & finer terms and highly flexible
  • Access to wide range of banks
  • Greater speed & reasonable certainty of obtaining funds simpler than other ways ofraising capital ( issuing of
  • bonds or equity)

Advantages to the Borrower 17. Advantages to the lead bank

  • Arrangement fees income without committing capital
  • Enhancing banks reputation
  • Enhancing the banks relationship with the client

18.

  • Diversification of risks (exposure norms prescribed by Central Banking authority)
  • Access to lending opportunities with low marketing cost
  • Opportunities to participate future syndications

Advantages to participating banks 19.

  • In case of borrower runs into difficulties, participant banks have equal treatment no disadvantage of the size vis--vis dominant bigger banks
  • Recognition
  • Return by way of interest & fees
  • Transferability

Advantages to participating banks 20.

  • Term Loans
  • Revolving Credit
  • Standby Facility

Instruments 21. Stages..

  • The Prospective Borrower May Liaise With A Single Bank Or It May Invite Competitive Bids From A Number Of Banks.
  • The Lead Bank Needs To:
    • Identify The Need Of The Borrower
    • Designing Appropriate Structure
    • Develop A Persuasive Proposal
  • On Approval Award Of Mandate

22.

  • Interest Spread Depends Upon :
  • Risk -Whether Sovereign Or Public / Joint Venture Or PrivateSector
  • Industry Or Activity Of The Company
  • Credit Rating Of The Country
  • Credit Rating Of The Borrower/Group
  • Period / Average Life Of The Loan - 3-5-7 Years?
  • Repayment/ Structure - Whether Bullet Or Amortisation ?

Pricing.. 23.

  • Reserve clause- increased cost revision of interest rate
  • Default clause right to recall paripasu charge
  • Jurisdiction for settlement of disputes
  • Availability of draw down subject to availability of funds
  • Key documentation clauses
  • Material adverse change clause- negative lien
  • Expiry date

Term Sheet .. 24.

  • Preparation by Law Firm
  • Incorporation of Terms Specific /General role of each party clearly defined
  • Revision, Negotiation & Finalisation
  • LMA Recommended Form of Primary Documents (Loan Market Assn, London)

Documentation.. 25.

  • WHY:
    • Liquidity & Trading Profits
    • Exposure Management
    • Reduction & Diversification of Risks
    • Regulatory Constraints
    • Asset Building and Relationship

Secondary Market Transfers.. 26. 27.

  • Thank you