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Thursday, 25th April 2024 |
| In the second of a two part series on syndicated lending, Alan Doyle explains the main roles of those involved in a syndicate deal, as well as detailing the typical process and timetable of such a deal. |
There are a number of roles within a syndicate but the key roles are as follows:
Mandated lead arranger / arranger - Syndicate loans are arranged by a small number (or one) bank known most commonly as the Mandated Lead Arranger(s) (‘MLAs’). It is the responsibility of the MLAs to negotiate the terms and conditions (including the price), the tenor and the structure of the facility with the customer. Once the key terms of the loan have been agreed these are documented in a Term Sheet. A key driver of the decision to appoint MLAs will be their structuring and placing power (ie ability to sell the loan to other banks).
Bookrunner - when the structure and terms of the loan have been agreed one (or a number) of the MLAs will be appointed to sell the loan to other banks in the syndicated loan market (the bookrunner(s). A successful bookrunner will need to have a good distribution network to ensure the loan is successfully sold to other banks.
Underwriters - In some syndicated loans it is necessary for the company to have certainty of funds at an early stage in the process. This is particularly prevalent in Merger and Acquisition financing when the borrower needs certainty of funds but for confidentiality reasons does not wish to provide details of the deal to a wider audience. In this instance a small number of banks (or indeed just one), known as the Underwriters and Sub-Underwriters, will enter a commitment to provide the funds. This means in practice that a transaction can progress, with the borrower assured that the required funds are available, while the syndication or sell down of the loan can take place at a later date.
Participants - the bookrunner(s) will offer the loan to a number of other banks. Those banks who agree to participate are simply known as the participants. Based on their level of participation the participants may be given various title, eg co-arranger, lead manager.
Agent bank - A key role in the syndicate is the agent bank. The agent provides a management role in the transaction. The task of the agent may be broken into a facility agent (management of the actual loan ie drawdown, rollover repayment) and the security trustee who manages the documentation, ensures security is taken and enforceable and provides a compliance role for the banks.
Role of an agent bank
It is the agent who co-ordinates the transaction and acts as a liaison between the banks and the borrower. The agent is the representative of the banks and manages the facility. If the borrower was to negotiate every aspect of the deal with a number of banks or to co-ordinate drawdowns, rollovers or repayment of the loans with all of the banks this would take up significant management time.
The agent will negotiate any changes to the transaction or documentation with the company and then present this to the banks. The agent will also manage the loans on a day to day basis, ie will arrange for the drawdown and transfer of funds, will agree interest rates, charge and distribute interest and fees and collect repayments. The Agent will also maintain and monitor the documentation for compliance.
A successful agent bank will need to have the following attributes (among others as the occasion demands):
• Structuring expertise
• Underwriting capability
• Market knowledge
• Placing power
• Documentation management experience
• Ability to co-ordinate a number of banks
• Agency experience
Typical process and timetable
The timetable for completion of the loan is driven by the underlying transaction being financed. In the case of acquisitions or mergers this can be quite short and the loan delivered quickly, but in the case of a more simple refinancing the process will take longer.
A typical syndication process, from initial meeting with the agent / arrangers to signing of the loan agreement by all parties, can take 8 weeks. However, this can be shortened considerably if the underlying transaction demands and an underwriting can be delivered far quicker.
The syndicated loan market in Ireland has seen rapid growth over the last number of years. As Irish companies grow and internationalise underwriting and syndication are likely to have an increasing importance in the architecture of banking and finance into the future. |
Alan Doyle is an associate director in Bank of Ireland Corporate Banking.
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| Article appeared in the September 2003 issue.
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