The lead bank retains a partial interest in the loan, holds all loan documentation in its name, holds all original documentation, services the loan and deals directly with the borrower for the benefit of all participants. Normally, but not always, a lead bank originates the loan, closes the loan and then sells ownership interests to one or more participating banks. A syndicated loan differs from loan participation in that the lenders in syndication participate jointly in the origination and the lending process.Ī loan participation involves a sharing or selling of ownership interests in a loan between two or more financial institutions. The arranger and agent are able to increase its profitability by receiving additional fees and compensation for such services. Typically, one or more lenders will also take on the separate role as arranger of the loan and as agent for the credit facility and will assume responsibility of administering the loans for all lenders, including collecting loan payments and fees made under the notes and distributing to each syndicate lender its respective share. Each lender has a direct legal relationship with the borrower and receives its own promissory note from the borrower. However, the relationship between syndicate lenders and the borrower and participant lenders and the borrower are usually very different.Ī syndicated loan is a loan made respectively by two or more lenders contracting directly with a borrower under the same credit agreement with the lenders dividing the responsibility to lend the full amount of the loan. Although there are benefits to these lending relationship, lenders within a syndicate group give up the day-to-day routine decision making to the lead lender and the flexibility to make decisions independently and take unilateral actions with respect to the loan in favor of group decision making based upon agreed levels of consent. In addition, these arrangements permit lenders to access expertise, business relationships and deal-flow of the arranging lender without having to invest large amounts for marketing costs and administrative capabilities. These arrangements allow lenders to engage in transactions which might otherwise be prohibited by their lending policies and guidelines. Loan syndications and participations also permit lenders to reduce capital weight and provide financial accommodations to valuable clients whose credit needs exceed a lender’s credit exposure limits. ![]() ![]() Loan syndications and loan participations continue to grow in commercial finance as lenders seek to expand beyond their traditional sources of revenue, enter new or developing markets and industries, maintain acceptable levels of diversification of its investments, and share development risks and credit risks with respect to particular or complex projects, borrowers or industries. Love, Esq., Partner, Love and Long, L.L.P.
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