Limitations on borrower concentrations imposed by regulatory bodies may increase the difficulty of large borrowers to secure funding in sufficient amounts from individual lenders. Likewise, lenders in the syndicate may secure better terms than would be available to them in a direct borrower-to-single lender relationship, however, the overall terms of the transaction must be considered as syndicate agreements may not include some terms and conditions lenders ordinarily include in their loan agreements and related documents. Large borrowers may be able to negotiate more favorable terms with a loan syndicate than would be available to them in negotiating with a single lender, however not all terms may be more favorable for the borrower due to the needs of the syndicate to protect the interests of all lenders. Considerations Involving Loan Syndications Borrower Terms – Loan Agreement Each participant enters into a participation agreement with the loan originator or lead lender. In loan participation, participants purchase interests in a loan originated by the lead lender and the borrower are not directly liable to individual lenders for performance under the terms of the loan. In loan syndication, relationships between the lenders are governed by a loan facility and the borrower deals with the syndication lenders as an entity through the agent. Differences Between Loan Participation and Loan Syndication Work Loan Syndication is commonly used in large-scale projects such as those in the infrastructure, energy, and real estate industries, where the size of investment often requires multiple investors for success. It is also used extensively where geopolitical considerations add complexity to the lending process (loans to foreign corporations, NGOs, political subdivisions, etc.) or the transaction involves currency exchange.

Where Is a Syndicated Loan Typically Used? Debt syndication comes with its own set of risks and potential rewards. After the loan is closed, the lead lender collects payments, remits each syndicate member’s share, and takes action as necessary to protect the interests of the syndicate and its members. The agent arranges for the funds to be pooled and enters into loan and security agreements with the borrower(s). The lead lender – sometimes called the “syndicate agent”, “facility agent” or simply the “agent” – acts on behalf of all members of the syndicate that are participating in the credit facility. Loan syndicates are governed by complex loan syndication agreements that detail the rights and responsibilities of the syndicate members. To form a loan syndicate the lead lender assembles other lenders interested in the cooperative lending arrangements referred to as a “facility”. In this blog post, we’ll explore these topics in greater detail and discuss why using this method might be right for your organization. Lending risks may be lessened as they are shared by a pool of lenders. These borrowers may be outside the geographical territories, lending experience, or relationship experience of some loan syndicate members. Through loan syndication, lenders may be able to participate in loans to large borrowers with strong creditworthiness and diverse operations. Borrowers may be able to borrow more from a loan syndicate than they would be able to borrow through a single lender. The loan syndication process allows lenders to pool their resources and create a reservoir of available funds more than what any single syndicate member would lend. Loan syndication is an effective way for large, complex borrowers to acquire funds for expansion, refinance of existing debt, or to purchase new assets.

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