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Chapter - 1
INTRODUCTION
LOAN MARKET IN U.S.A.
In the U.S., market flex language drives initial pricing levels. Before
formally launching a loan to these retail accounts, arrangers will often
get a market read by informally polling select investors to gauge their
appetite for the credit. After this market read, the arrangers will
launch the deal at a spread and fee that it thinks will clear the market.
Until 1998, this would have been it. Once the pricing, or the initial
spread over a base rate which is usually LIBOR, was set, it was set,
except in the most extreme cases. If the loans were undersubscribed,
the arrangers could very well be left above their desired hold level.
Since the 1998 Russian financial crisis roiled the market, however,
arrangers have adopted market-flex language, which allows them to
change the pricing of the loan based on investor demandin some
cases within a predetermined rangeand to shift amounts between
various tranches of a loan, as a standard feature of loan commitment
letters.

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As a result of market flex, loan syndication functions as a bookbuilding exercise, in bond-market parlance. A loan is originally
launched to market at a target spread or, as was increasingly common
by 2008 with a range of spreads referred to as price talk (i.e., a target
spread of, say, LIBOR+250 to LIBOR+275). Investors then will make
commitments that in many cases are tiered by the spread. For
example, an account may put in for $25 million at LIBOR+275 or $15
million at LIBOR+250. At the end of the process, the arranger will
total up the commitments and then make a call on where to price the
paper. Following the example above, if the paper is vastly
oversubscribed at LIBOR+250, the arranger may slice the spread
further. Conversely, if it is undersubscribed even at LIBOR+275, then
the arranger will be forced to raise the spread to bring more money to
the table.

LOAN MARKET IN EUROPE

In Europe, banks have historically dominated the debt markets
because of the intrinsically regional nature of the arena. Regional
banks have traditionally funded local and regional enterprises
because they are familiar with regional issuers and can fund the local
currency. Since the Euro zone was formed in 1998, the growth of the
European leveraged loan market has been fuelled by the efficiency
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provided by this single currency as well as an overall growth in

merger & acquisition (M&A) activity, particularly leveraged buyouts
due to private equity activity. Regional barriers (and sensitivities
toward consolidation across borders) have fallen, economies have
grown and the euro has helped to bridge currency gaps.
As a result, in Europe, more and more leveraged buyouts have
occurred over the past decade and, more significantly, they have
grown in size as arrangers have been able to raise bigger pools of
capital to support larger, multi-national transactions. To fuel this
growing market, a broader array of banks from multiple regions now
fund these deals, along with European institutional investors and U.S.
institutional investors, resulting in the creation of a loan market that
crosses the Atlantic.

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Chapter - 2
LOAN SYNDICATION
The size of loan is large, individual banks cannot or will not be able to
finance. They would prefer to spread risk among a number of banks
or a group of banks is called as Syndication of loans. These days
there are large group of banks that form syndicates to arrange huge
amount of loans for corporate borrowers the corporate that would
want a loan but not be aware of those banks willing to lend. Hence,
syndication pays a vital role here. Once the borrowers has decided
upon the size of the loan, he prepares an information memorandum
containing information like the amount he requires, the purpose,
business details of his country and its economy. Then he receives bids
(after this the borrower and the lender sit across the table to discuss
about the terms and conditions of lending this process of negotiations
is called syndication.) The process of syndication starts with an
invitation for bids from the borrower. The mandate is given to a
particular bank or institution that will take the responsibility of
syndicating the loan while arranging the financing banks.

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Syndication is done on a best effort basis or an underwriting basis. It

is usually the lead manager who acts as the syndicator of loans, the
lead manager has dual tasks that is, formation of syndicate
documentation and loan agreement. Common documentation is
signed by the participation banks or common terms and conditions.
Thus, the advantages of the syndicated loans are the size of the loan,
speed and certainty of funds, maturity profile of the loan, flexibility
in repayment, lower cost of fund, diversity of currency, simpler
banking relationship and possibility of renegotiation.

"Syndication

is

an

arrangement

where a group of banks, which may

not

have

relationship

any
with

other

business

the

borrower,

participate for a single loan."

Typically, syndicated loans are structured as term loans or operating
revolvers. However, they may also include tranche or segmented
structures, letters of credit, acquisition facilities, construction
financing, asset-based structures, project financing and trade finance.
The standard theory for why banks join forces in a syndicate is risk
diversification.

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FOR EXAMPLE: If a company wants a huge amount as a loan for

expansion or any other purpose, say when Reliance or ITC wants
money, loans are got from the banks. But generally, it got from a
single bank and that single bank alone shares the risk. Take the case
of funding a rocket launch - if the launch is a failure, then the bank
which funds for it may become bankrupt. But in syndication, many
banks come together and fund a single project.
Loan syndication is basically done to share the total loss or liability.

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Chapter - 3
TYPES OF LOANS
SYNDICATION
Globally, there are three types of underwriting for syndications: an
underwritten deal, best-efforts syndication, and a club deal. The
European leveraged syndicated loan market almost exclusively
consists of underwritten deals, whereas the U.S. market contains
mostly best-efforts.

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UNDERWRITTEN DEAL:
An underwritten deal is one for which the arrangers guarantee the
entire commitment, and then syndicate the loan.
If the arrangers cannot fully subscribe the loan, they are forced to
absorb the difference, which they may later try to sell to investors.
If it is not get sold than the arranger may be forced to sell at a
discount and, potentially, even take a loss on the paper.
Arrangers underwrite loans for several reasons. First, offering an
underwritten loan can be a competitive tool to win mandates.

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Second, underwritten loans usually require more lucrative fees

because the agent is on the hook if potential lenders balk.

BEST-EFFORTS SYNDICATION:
A best-efforts syndication is one for which the arranger group commits to
underwrite less than the entire amount of the loan, leaving the credit to
the vicissitudes of the market.
Traditionally, best-efforts syndications were used for risky borrowers or
for complex transactions.
Since the late 1990s, however, the rapid acceptance of market-flex
language has made best-efforts loans the rule even for investment-grade
transactions.

CLUB DEAL:
A club deal is a smaller loan usually $25100 million, but as high as
$150 millionthat is pre marketed to a group of relationship lenders.
The arranger is generally a first among equals, and each lender gets a
full cut, or nearly a full cut, of the fees.

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Chapter - 4
CREDIT INSTRUMENTS OF
LOANS SYNDICATION
Syndicated loan agreements may contain only a term or revolving
facility or they can contain a combination of both or several of each
type (for example, multiple term loans in different currencies and
with different maturity profiles are not uncommon). There can be one
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borrower or a group of borrowers with provision allowing for the

accession of new borrowers under certain circumstances from time to
time. The facility may include a guarantor or guarantors and again
provisions may be incorporated allowing for additional guarantors to
accede to the agreement.
Two types of loan facility are commonly syndicated: term loan
facilities and revolving loan facilities:

TERM LOAN FACILITY:

Under a term loan facility the lenders provide a specified capital
sum over a set period of time, known as the "term".
The borrower is allowed a short period after executing the loan
(the "availability" or "commitment" period), during which time it
can draw loans up to a specified maximum facility limit.
Repayment may be in installments or there may be one payment at
the end of the facility.
Once a term loan has been repaid by the borrower, it cannot be redrawn.

REVOLVING LOAN FACILITY:

A revolving loan facility provides a borrower with a maximum

aggregate amount of capital, available over a specified period of
time.
Unlike a term loan, the revolving loan facility allows the borrower
to draw down, repay and re-draw loans advanced to it of the
available capital during the term of the facility.
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Each loan is borrowed for a set period of time, usually one, three
or six months.
Repayment of a revolving loan is made either by regular
reductions in the total amount of the facility over time, or by all
outstanding loans being repaid on the date of termination.
If another revolving loan is made to refinance another revolving
loan which has a maturity on the same date it is called as "rollover
loan".
A revolving loan facility is a particularly flexible financing tool as
it may be drawn by a borrower by way of simple loans, but it is
also

possible

to

incorporate

different

types

of

financial

accommodation within it.

Chapter - 5
NEED FOR LOAN
SYNDICATION
CORPORATES OPT FOR SYNDICATION WHEN:
1. The borrower wants to raise large amount of money quickly and
conveniently.
2. The amount exceeds the exposure limits or appetite of any one
lender.
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3. The borrower does not want to deal with a large number of lenders.
Traditionally, loan syndication was practiced in Europe. Euro
syndicated loan is usually a floating rate loan with fixed maturity, a
fixed draw down period and a specified repayment schedule. One,
two or even three banks may act as lead managers and distribute the
loan among themselves and other participating banks. One of the
lead banks acts as the agent bank and administers the loan after
execution, disbursing funds to the borrower, collecting and
distributing interest payments and principal repayments among lead
banks, etc. A typical Euro credit would have maturity between 5 to 10
years, amortization in semi-annual installments, and interest rate
reset every three or six months with reference to LIBOR.
Syndicated loans can be structured to incorporate various options,
e.g., a drop lock feature converts the floating rate loan into a fixed rate
loan if the benchmark index hits a specified floor. A multi-currency
option allows the borrower to switch the currency of denomination
on a roll-over date. Security in the form of government guarantee or
mortgage on assets is required for borrowers in developing countries
like India.

SYNDICATED LOAN MARKETS:

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Syndicated loans are international in their understanding, although

certain geographical regions, maintain unique attributes. The broad
international markets are North America, EMEA and Asia. Within
Asia, based upon size and volume of loans, Japan is often singled out
as a significant market.
The syndicated loan market could be roughly divided into two
classes of syndicated loans. The first, designed for smaller
companies (loan sizes approximately between 20 to 250 Million),
feature funds usually lent by a fixed group of banks for a fixed
amount. In North America and Europe, larger loans than this are
often open to be traded, so that they almost become more like a
regular bond. Purchasers of these loans include hedge funds, pension
funds, banks, and other investment vehicles. Asian markets have
limited number of loans that are freely traded this way.
The second, until the subprime lending crisis, larger syndicated
loans, although agented by one bank, were often sold to the
international capital markets after repacking into trusts and being
sold as collateralized loan obligations. For larger loans, there was
some evidence that the agent banks would often underwrite portions
of these loans specifically for on selling as collateralized loan
obligations. This underwriting may have been in excess of the
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broader expected appetite of traditional lenders. With the collapse of

many aspects of the international fixed income (lending) capital
markets due to the subprime crisis, many banks were stuck with
underwritten positions, potentially on trems they would not have lent
on for the entire stated period of the business loan. These are known
as hung or stuck underwriters or loans and have been
responsible for a portion of the recent losses of financial institutions.

Chapter - 6
STAGES AND PROCESS OF
LOAN SYNDICATION
STAGES
INVOLVED
SYNDICATION:

IN

LOANS

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PRE - MANDATE PHASE:

The prospective borrower may liaise with a single bank or it may
invite competitive bids from a number of banks. The lead bank
identifies the needs of the borrower, designs an appropriate loan
structure, develops a persuasive credit proposal, and obtains internal
approval. The mandate is created. The documentation is created with
the help of specialist lawyers.

PLACING THE LOAN:

The lead bank can start to sell the loan in the market place. The lead
bank needs to prepare an information memorandum, term sheet, and
legal documentation and approach selected banks and invite
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participation. The lead manager carries out the negotiations and

controversies are ironed out. The syndication deal is closed, including
signing of the mandate.

POST - CLOSURE PHASE:

The agent now handles the day-to-day running of the loan facility.

PROCESS
INVOLVED
SYNDICATION:

IN

LOAN

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1. The borrower decides about the size and currency of the loan he
desires to borrowers and approaches the banks for arranging the
financing on the basis of business, purpose of the loan, etc.
2. For a name acceptable in the market, in general several banks or
group of banks will come forward with offers indicating broad
terms on which they are willing to arrange the loan. The bank
offers to be Lead Manager. In their offers, the lead manager would
indicate the loan and its commitment and other charges and
spreads over LIBOR on which they are willing to arrange the loan.
3. The borrower chooses the bid which appears to be the best to him
in terms of the package, other terms and conditions and the
relationship factor, etc., on receiving the bid from various banks or
groups of banks.
4. The loan gets finalized by both the borrowers and the lenders on
and the lenders on an information memorandum giving financial
details and other details of the borrower. The lead manager would
participate in the loan from lenders based on the information
memorandum.
5. The entire fees would be showed by the participating bank (based
on their participation) and lead manager.
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6. The Lead Manager are liable to finance the balance amount.

7. The next step in finalization of the loan agreement by borrowers
and lender is done after the participants are known and the loan is
published through a financial press.

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Chapter - 7
PARTICIPANTS OF LOAN
SYNDICATION
ARRANGER / LEAD MANAGER:
The lead manager is a bank that is awarded the mandate by the
prospective borrower and is responsible for placing the syndicated
loan with the other banks and ensures that the syndication is fully
subscribed. They are entitled to the arrangement fee and undergo a
reputation risk during this process.

UNDERWRITING BANK:
It is the bank that commits to supplying the funds to the borrower - if
necessary from its own resources if the loan is not fully subscribed.
The lead manager or another bank may play this role. Not all
syndications are underwritten. The risk is that the loan may not be
fully subscribed.
Syndication is an arrangement where a group of banks, which
may not have any other business relationship with the borrower,
participate for a single loan.
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PARTICIPATING BANK:
This bank participates in the syndication by lending a portion of the
total amount required. It is entitled to receive the interest and the
participation fee. But it, however, faces risks such as:
1. Borrower credit risk.
2. Passive approval and complacency

FACILITY MANAGER / AGENT:

This bank takes care of all the administrative arrangements over the
term of loan, e.g., disbursements, repayments, compliance. This bank
acts on behalf of all the banks participating. This may be either the
lead manger or the underwriting bank.

FUNCTIONS OF AGENT:
POINT OF CONTACT:
Maintaining contact with the borrower and representing the views of the
syndicate.
MONITOR:
Monitoring the compliance of the borrower with certain terms of the
facility.
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RECORD-KEEPER:
It is the agent to whom the borrower is usually required to give notice.
PAYING AGENT:
The borrower makes all payments of interest and repayments of principal
and any other payments required under the Loan Agreement to the Agent.
The Agent passes these monies back to the banks to which they are due.
Similarly the banks advance funds to the borrower through the Agent).

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Chapter - 8
SIGNIFICANCE OF LOAN
SYNDICATION
ADVANTAGES:
Syndicated loan facilities can increase competition for your
business, prompting other banks to increase their efforts to put
market information in front of you in the hopes of being
recognized.
Flexibility in structure and pricing. Borrowers have a variety of
options in shaping their syndicated loan, multicurrency options,
risk management techniques, and prepayment rights without
penalty.

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Syndicated facilities bring businesses the best prices in aggregate

and spare companies the time and effort of negotiating
individually with each bank.
Loans terms can be abbreviated.

Increased feedback. Syndicated banks sometimes willing to share

perspectives on business issues with the agent that they would be
reluctant to share with the borrowing business.
Syndicated loans brings the borrower greater visibility in the open
market. Bunn noted that for commercial papers issuers, rating
agencies view a multi year syndicated facility as stronger
support than several bilateral one year lines of credit.
Working capital credit (refinancing of small lines of credit, etc.).
Export finance (including ECAs).
Capital goods financing (machinery, etc.).
Mergers & Acquisitions.
Project finance (SPVs, structured according to cash flow).
Stand-by facilities Guarantees (supply, service, etc.).
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Trade finance (Letters of credit, promissory notes, forfeiting).

Allows the borrower to access from diverse group of financial

institutions.
Borrowers can raise funds more cheaply in the syndicated loan
market than by borrowing the same amount of money through a
series of bilateral loans.
This cost saving increases as the amount required rises.

DISADVANTAGES:
Each bank needs to come to an understanding of

the business

and how its financial activities are conducted.

A comfort level must be established on both

sides of the

transaction, which requires time and effort.

Negotiating a document with one bank can take

days. To

negotiate documents with four to five banks separately is a timeconsuming, inefficient task.

Staggered maturities must be monitored and

orchestrated.

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Multiple lines require an inter-creditor agreement

T. Y. F. M.

among the

banks, which takes additional time to negotiate.

Chapter - 9
DOCUMENTATION
IMPORTANT PROVISION OF
SYNDICATION AGREEMENT:

LOAN

1. The loan agreement specifies the interest, commitment fees and

the management fees that the borrower should pay to the lender.
2. Document pertaining to borrowers financial position, over run
finance agreement, got approvals received (for example: relating to
tax, reduction at sources) trying up of other financial requirements
(if required), certificates from lawyers, and other internal and
external approval that would be required.
3. The primary or the secondary security against which the loan is
taken will have to be decided.

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4. The circumstances that are to be treated as default and suit against

the borrower is not servicing the loan, cross default clauses (aimed
at giving the lenders the right to accelerate repayment of the loan
in the event of the borrower or guarantor is in default under any
loan agreement), etc. are decided.
5. Jurisdiction is an important element of any international loan
agreement and it tells which countrys law is applicable.

DOCUMENTATION FOR A SYNDICATED

LOAN:
MANDATE LETTER:
The borrower appoints the Arranger via a Mandate Letter (sometimes
also called a Commitment Letter). The content of the Mandate Letter
varies according to whether the Arranger is mandated to use its "best
efforts" to arrange the required facility or if the Arranger is agreeing
to "underwrite" the required facility. The provisions commonly
covered in a Mandate Letter include:
1. An agreement to "underwrite" or use "best efforts to arrange";
2. Titles of the arrangers, commitment amounts, exclusivity
provisions;
3. Conditions to lenders' obligations;

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4. Syndication issues (including preparation of an information

memorandum, presentations to potential lenders, clear market
provisions, market flex provisions and syndication strategy);
5. Costs cover and indemnity clauses.

TERM SHEET:

The Mandate Letter will usually be signed with a Term Sheet

attached to it. The Term Sheet is used to set out the terms of the
proposed financing prior to full documentation. It sets out the parties
involved, their expected roles and many key commercial terms (for
example, the type of facilities, the facility amounts, the pricing, the
term of the loan and the covenant package that will be put in place).

INFORMATION MEMORANDUM:
Typically prepared by both the Arranger and the borrower and sent
out by the Arranger to potential syndicate members. The Arranger
assists the borrower in writing the information memorandum on the
basis of information provided by the borrower during the due
diligence process. It contains a commercial description of the
borrower's business, management and accounts, as well as the details
of the proposed loan facilities being given.
It is not a public document and all potential lenders that wish to see it
usually sign a confidentiality undertaking.

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SYNDICATED LOAN AGREEMENT:

The Loan Agreement sets out the detailed terms and conditions on
which the Facility is made available to the borrower.

FEE LETTERS:
In addition to paying interest on the Loan and any related bank
expenses, the borrower must pay fees to those banks in the syndicate
who have performed additional work or taken on greater
responsibility in the loan process, primarily the Arranger, the Agent
and the Security Trustee. Details of these fees are usually put in
separate side letters to ensure confidentiality. The Loan Agreement
should refer to the Fee Letters and when such fees are payable to
ensure that any non-payment by the borrower carries the remedies of
default set out in the Loan Agreement.

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Chapter - 10
SYNDICATION LOAN
TRANSFER
REASONS TO SELL A PARTICIPATION
IN LOAN SYNDICATION?
A lender under a syndicated loan may decide to sell its commitment
in a facility for one or more of the following reasons:

REALIZING CAPITAL:

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If the loan is a long-term facility, a lender may need to sell its share of
the commitment to realize capital or take advantage of new lending
opportunities.

RISK/PORTFOLIO MANAGEMENT:
A lender may consider that its loan portfolio is weighted with too
much emphasis on a particular type of borrower or Loan or may wish
to alter the yield dynamics of its loan portfolio. By selling its
commitment in this loan, it may lend elsewhere, thus diversifying its
portfolio.

REGULATORY

CAPITAL

REQUIREMENTS:
A bank's ability to lend is subject to both internal and external
requirements to retain a certain percentage of its capital as cover for
its existing loan obligations. These are known as "Regulatory Capital
Requirements".

CRYSTALLIZE A LOSS:
The lender might decide to sell its commitment if the borrower runs
into difficulties - specialists dealing in distressed debts provide a
market for such loans.
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However, before the lender can go ahead and transfer its participation
in a syndicated loan, it must consider the implications of the methods
of transfer available to it under the Syndicated Loan Agreement.

FORMS OF TRANSFER:
The most common forms of transfer to enable a lender to sell its loan
commitment are:
(i)

Novation. (the most common legal mechanic used in transfer

(ii)
(iii)
(iv)
(v)

certificates scheduled to loan agreements)

Legal assignment.
Equitable assignment.
Funded participation.
Risk participation.

Methods (i) and (ii) result in the lender disposing of its loan
commitment with the new lender assuming a direct contractual
relationship with the borrower, whilst methods (iii) to (v) result in the
lender retaining a contractual relationship with the borrower.
Each of these methods is now explained in more detail:

1) NOVATION:
Novation is the only way in which a lender can effectively 'transfer'
all its rights and obligations under the Loan Agreement.

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The process of transfer effectively cancels the existing lender's

obligations and rights under the loan, while the new lender
assumes identical new rights and obligations in their place.

Therefore the contractual relationship between the transferring

lender and the parties to the loan agreement cease.

The new lender enters into a direct relationship with the borrower,
the agent and the other lenders.

The borrower has to be a party to the novation process.

The documentation required to affect a novation of a participation
in a syndicated loan depends on the provisions in the Loan
Agreement.

However

most

Loan

Agreements

(including

the

LMA

recommended form) have a transfer certificate attached as a

schedule that operates by way of novation.

The Agent, the new lender and the existing lender are the only
parties usually required to execute the transfer certificate.

2) LEGAL ASSIGNMENT:
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Assignment involves the transfer of rights, but not obligations.

For a legal assignment, Section.136 of the Law of Property Act 1925

provides that the assignment must be:

Absolute (i.e. the whole of the debt outstanding to the existing

lender).
In writing and signed by the existing lender.
Notified in writing to the borrower.
In the context of the syndicated loan, a legal assignment will
transfer all of the existing lender's rights under the Loan
Agreement (including the right to sue the borrower and the right
to discharge the assigned debt) to the new lender.
The obligation of the existing lender to provide funds to the
borrower cannot be transferred by legal assignment and thus
remains with the existing lender.

The new lender pays the existing lender any funds due under the
loan and the existing lender sends those funds on to the Agent,
who then passes such funds on to the borrower.

3) EQUITABLE ASSIGNMENT:

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As mentioned above, an equitable assignment is created when one

or more of the provisions of section 136 of the Law of Property Act
1925 is not met.

In contrast to a legal assignment, the new lender, as the equitable

assignee, must join the existing lender, as assignor.

The most significant difference between a legal and equitable

assignment arises if the borrower is not notified of the assignment.
If the borrower is not notified of the assignment, the new lender
will be subject to all equities which arise between the existing
lender and the borrower.

4) FUNDED PARTICIPATION:
Under a funded participation the existing lender and the
participant enter into a contract providing that the participant
while repaying the principle amount of the loan and the interest
will provide the existing lender with the same amount of shares in
the share capital of the company.

A funded participation agreement is made between the existing

lender and the participant.

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This creates new contractual rights between the existing lender

and the participant.

However this is not an assignment of those existing rights and the

existing lender remains in a direct contractual relationship with
the borrower.

The existing lender remains liable under the Syndicated Loan

Agreement.

5) RISK PARTICIPATION:
Risk participation is a form of participation which acts like a
guarantee.

The risk participant will not immediately place any money with
the existing lender, but will agree, for a fee, to put the existing
lender in funds in certain circumstances (typically on any payment
default by the borrower).

Risk participation may be provided by a new lender as an interim

measure before it takes full transfer of a loan.

No borrower consent is required for either a Funded Participation

or a Risk Participation, so this process can be confidential.
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There is no direct contract between the new lender and the

borrower but the participant usually obtains rights of subrogation
because in case of default by the borrower at the time of
indemnifying the participant the risk participant can gains the
right to step into the existing lender's shoes.

Chapter - 11
TOP 20 BANKS
PARTICIPATING IN LOAN
SYNDICATION
RANK

PARTICIPATING BANK

COUNTRY

RAIFFEISEN ZENTRALBANK STERREICH AG

AUSTRIA

UNICREDIT HVB GROUP BANK AUSTRIA

ITALY

CREDITANSTALT

AUSTRIA

BAYERISCHE HYPO-UND VEREINSBANK AG

GERMANY

UNICREDITO ITALIANO SPA

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ING GROEP NV

NETHERLANDS

ERSTE BANK DER OESTERREICHISCHEN

FRANCE

SPARKASSEN AG
5

ERSTE BANK DER OESTERREICHISCHEN

AUSTRIA

SPARKASSEN AG
6

BNP PARIBAS SA

FRANCE

STANDARD BANK LONDON LTD

UNITED KINGDOM

COMMERZ BANK AG

GERMANY

BAYERISCHE LANDERS BANK

GERMANY

10

DEXIA SA

BELGIUM

11

NORDEA BANK SWEDEN AB(PUBL)

SWEDEN

12

ABN AMRO BANK NB

NETHERLANDS

13

FORTIS GROUP

BELGIUM

14

FMO (THE NETHERLANDS DEVELOPMENT

NETHERLANDS

FINANCE COMPANY)

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15

CORDIANT CAPITAL INC

CANADA

16

SUMITOMO MITSUI BANKING CORPORATION

JAPAN

17

SKANDINAVISKA ENSKILDA BANKEN AB

SWEDEN

18

STATE BANK OF INDIA

INDIA

19

INTESA SANPAOLO SPA

ITALY

20

SOCIETE GENERALE

FRANCE

Chapter - 12
ROLE OF CREDIT RATING
AGENCIES IN LOAN
SYNDICATION
A credit rating agency is an independent body which gives its
opinion on the future ability, legal obligation and moral commitment
of an entity to meet its financial obligation in a timely manner.
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Globally, credit ratings are pre-requisite for raising finance and is

used to assist potential investors in decision making. Credit rating
agencies specialize in analyzing and evaluating the credit worthiness
of the corporate and sovereign issuers.

Credit rating agencies bridge the gap of information between lenders

and borrowers regarding the credit worthiness of the borrower.

Issuers with lower credit rating always pay higher interest rate
involving larger risk premium then the higher rated issued. Rating
determines the eligibility of borrower to borrow and timely
repayment of the loan.

The rating fall into two categories:

1) Recognized

2) Non Recognized

In U. S. A. only 5 rating agencies are recognized by the Security

exchange Commission (SEC). Moodys and Standards and Poors are
the most popular and recognized credit rating agencies all over the
world. The majority of credit rating agencies like Economic
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Intelligence Unit (EIU), Institutional Investors (IT) and Euromoney

are Non Recognized.
Credit rating agencies differ in their methodologies, default risk and
perception.

Most of the international loans are unsecured in nature and are

subject to country risk and sovereign risk. A credit rating provides a
larger variety of information that needs to be known by the issuer of
the bonds in a symbolic format.

Credit rating is nothing but an opinion

and is not recommendation to buy, to sell,
or to hold a security.

Following are the renowned credit rating agencies operating in

International Markets:
1)
2)
3)
4)
5)

Augusto and Company.

Standards and Poors.
Global Credit Rating (GCR).
Moodys.
Flitch Ratings.

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SIGNIFICANCE
AGENCIES:

OF

CREDIT

T. Y. F. M.

RATING

Level of credit rating is indirectly proportionate to borrowing cost.

Higher the credit rating lower the borrowing cost and vice versa.

Rating provides information to the investment community and

facilitates access to debt market to borrower.

Rating agencies provides free publicity about the financial

performance and make it easy to institute financial management
technique which will improve future ratings.

Credit rating affects both sides of the balance sheet. (Borrowing

and investment)
Opinion of credit rating agencies affect policies of the government
and corporate directly because government as well as corporate
may avoid certain decisions which may downgrade their future.

Credit rating benefits both the parties. (Investor and borrower)

CREDIT RATING AGENCIES PROCESS:

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Credit rating agencies normally use quantitative and qualitative

methods for rating. A sovereign rating involves measuring a risk
that the government may default on its own obligation either in local
currency or foreign currency. Rating agencies take into account both,
ability as well as willingness a government to repay its debt in a
timely manner. In accessing sovereign rick credit rating agencies
highlight several parameters like:

1) ECONOMIC PARAMETERS.

2) POLITICAL PARAMETERS.

3) FISCAL AND MONETARY FLEXIBILITY.

4) DEBT BURDEN OF THE COUNTRY.

Chapter - 12
CONCLUSION
Over the past ten years, commercial lending has been transformed
from a one-off, bilateral market in which issuers maintained one or
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more separate banking relationships into a capital market in which

one or more underwriters structure and price loans for syndication
to groups of investors. This market-driven evolution has been most
dramatic in the leveraged lending segment (defined as loans priced at
LIBOR plus 150 basis points or more), where wide margins have
attracted a large and growing field of underwriters, intermediaries,
and investors.
Liquidity is the overriding theme in today's syndicated loan market,
making the market a more user-friendly one for corporate borrowers
and deal sponsors. As a result, a record number of corporate issuers
are taking advantage of the syndicated loan market to finance
strategic transactions or simply to reduce their borrowing costs.
For banks and other investors, reduced loan pricing and more flexible
credit structures have been balanced by much greater access to a large
volume of diversified assets, as well as the ability to manage assetspecific and portfolio risk more effectively. As a result lenders today
are less vulnerable to credit problems with individual issuers or a
given industry segment, and the bank market as a whole should be
much less subject to disruption than it proved to be in the early 1990s.
For Infrastructure development; Due to tremendous growth in
infrastructure sector, loans syndication have become a most sought
44 | P a g e

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credit

LOANS SYNDICATION

instruments

in

the

most

emerging

T. Y. F. M.

markets.

So

far

infrastructure development was the domain of government. But due

financial constraints and budget deficits it has been transformed into
Public

Private

Participation

and

built

operate

and

transfer

mechanism.
Since the needs of the corporate who undertake infrastructure finance
is large one. Corporate have different options like Market, Financial
institutions and Venture Capital to raise long term Finance. Now-aDays loans syndication is also used for mergers, acquisitions and
takeovers. There is a big structural change going on now in loans
syndication market. Till now there were no negotiations in loans
syndication but now there are two way quotes in loans in
International Capital Markets. There are best prices being given to
both borrower and the lenders.

NAME OF
THE
COMPANY

LOAN
RATING COUP
MOODY
ON
'S /S&P

MATURI
TY

BOSQUE POWER CO.

WR/NR

L+525

12/22/2014

CELANESE US

N.R.*/N.R.*

L+300

10/1/2016
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T. Y. F. M.

HOLDINGS LLC

CHARTER

WR/BB+

L+262.5

3/6/2014

CLAIRE'S STORES

CAA2/B-

L+275

5/29/2014

CLEAR CHANNEL

CAA1/CCC

L+365

1/30/2016

COLETO CREEK

B1/B+

L+275

6/28/2013

CONSTELLATION

BA3/BB

L+150

5/11/2013

N.R.*/N.R.*

L+450

10/24/2014

FORD MOTOR

BA3/BB

L+300

12/15/2013

GATEHOUSE MEDIA

CA/CCC-

L+200

2/27/2014

COMMUNICATIONS

COMMUNICATIONS

BRANDS INC

DEX MEDIA WEST

LLC

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T. Y. F. M.

HERBST GAMING

WR/NR

L+187.5

12/8/2013

HERCULES

B2/B-

L+650

7/11/2013

B1/B+

L+175

12/19/2013

JOHN MANEELY CO

B3/B

L+325

12/9/2013

LEVEL 3

B1/B+

L+225

3/1/2014

N.R.*/N.R.*

L+275

4/8/2012

B2/BB-

L+200

4/6/2013

OFFSHORE

ISLE OF CAPRI
CASINOS

COMMUNICATIONS

METRO-GOLDWYNMAYER INC

NEIMAN MARCUS
GROUP INC

LAST MONTHS LOANS SYNDICATION

TRACK RECORD

CHAPTER - 14
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BIBILIOGRAPHY
(A) BOOKS REFERRED:
(1) INTERNATIONAL BANKING OPERATIONS MACMILLAN
(2) BANKING MANAGEMENT BHUPENDRA NAUTIYAL
(3) INTERNATIONAL BANKING AND FINANCE
-K.VISHWANATHAN
(4) INDIAN BANKING IN THE NEW MILLLENIUM M. P. SHRIVASTAVA, S. R. SINGH

(B) WEBSITES:
(1) www.investopedia.com
(2)

www.lsta.org

(3) www.wikipedia.org
(4) www.ebrd.org

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