The syndication of loans is an internationally practiced model for financing credit requirements of a borrower in lieu of consortium advance. Apparently, the syndication of credit line is similar to consortium finance but slightly different in certain aspects.
First of all, there is no restriction with regard to quantum of credit involved for credit syndication. If the arrangement suits the borrower then financing banks may opt for syndication route to lend. In syndication, the prospective borrower company gives a mandate to one of its bankers to arrange credit to the company jointly by a group of lender banks. The mandate given to a bank (known as lead bank/mandated bank) includes commercial terms of the credit and also prerogatives of the mandated bank to tie up with other banks for disbursement of loan and resolving the contentious issue in the course of the transaction of complete syndication. Thereafter, the mandated bank in consultation with the borrower prepares ‘Information Memorandum’ about the borrower and distributes the same amongst the prospective lenders and invites them to participate in the credit proposal. From such information available to them each prospective lender bank makes its own independent economy and financial evaluation of the borrower. If needed prospective lenders may collect additional information from other sources also. Thereafter, a meeting of the banks who have agreed to join the syndication is convened by the lead bank. In a meeting conducted by the lead bank, the matters related to strategy relating to co-ordination communication and control with the syndication process and to finalize the deal timing, charges for management, cost of credit, share of each participating bank in the credit etc. will be discussed and finalized. The lead bank (mandated bank) would oversee the credit facility using common documents of the borrower and then agreement is signed by all the participating banks. The lead bank receives an additional fee for this service, which involves recruiting the syndicate members and negotiating the financing terms.
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