Syndicated/Club Facility is typically a large sized Facility arranged thru a group of lenders.
All the participating lenders in a Syndicated/Club Facility are on the same commercial terms for the Facility.
The participating lenders are bound in the Facility by a common documentation with all the lenders on the same terms and conditions with a common security package.
The participation amount of each of the lenders in the Facility could vary significantly.
The number of participant lenders is a function of the size of the Facility and the interest evinced by the lenders. However, for efficiency of the Facility administration, typically a minimum participation amount is fixed for a syndication/club.
Step 1: Borrower approaches a Bank to arrange a large sized Facility.
Step 2: Based on the size of the Facility one or more lenders are appointed by the Borrower as Mandated Lead Arrangers (“MLAs”) to the Facility.
Step 3: of banks, geography to be covered, participation amount, road shows, etc) among themselves and with the consent of the Borrower for the syndication of Facility with other lenders Borrower agrees the Term- Sheet(detailing commercial terms) with the MLAs based on which the Facility would be arranged.
Step 4: MLAs agree the syndication strategy (detailing type of banks, number.
Step 5: MLAs divide the syndication work within themselves.
Step 6: Borrower appoints Facility Agent and Security Agent, lenders legal counsel and borrowers legal counsel for the Facility.
Step 7: Information Memorandum, Financial Model, Company presentation, Invitation Letter, and other documents are prepared by the Borrower with the MLAs.
Step 8: A target list of Banks to be approached for syndication is prepared by the MLAs and then consented by the Borrower.
Step 9: Entire Information Pack of the syndicated deal are uploaded to Intralinks/Debt Domain
Step 10: Deal is launched with invitation sent to potential participants.
Step 11: Borrower and MLAs facilitate the credit approval process of the participating Banks.
Step 12: Commitment to participate in the Facility from participating banks is received by the MLAs.
Step 13: MLAs aggregate the total commitments received from participating banks. In case the total commitment exceeds the Facility size, MLAs along with the Borrower scale down the commitments of participating banks such that its aggregates to the Facility size.
Step 14: Borrowers legal counsel drafts the Facility documentation which is then circulated to all MLAs an participating banks for their consent.
Step 15: Facility documentation is signed once in agreed form.
Step 16: Lenders legal counsel provides confirmation to participating banks once all the Conditions Precedent are satisfied by the Borrower, which leads to the drawdown of the Facility.
Parties to a Syndication
Mandated Lead Arrangers (MLAs): Banks responsible to structure and arrange the Facility with participating Banks.
Participating Banks: Banks that participate in the syndication of the Facility
Facility Agent: Typically, a bank who is responsible for the administration of the Facility viz. advising participating lenders on interest rate, interest period, collecting participation amount of Facility, remitting interest and principal to participating lenders, transfer of facility, etc.
Security Agent: Typically, a bank who is responsible to hold the security on behalf of all the lenders. The role of Facility Agent and Security Agent could be played by a same Bank.
Lenders legal counsel: Legal counsel who facilitates the documentation for the lenders.
Borrowers legal counsel: Legal counsel who facilitates the documentation for the Borrower.
Advantages of Syndication
Mobilises large sized Facilities: Syndication facilitates mobilisation of large sized facilities given several participating Banks.
Individual exposure of Banks is limited: Given several participating banks; individual commitment of Banks is limited, which leaves room for them to take additional exposure on the borrower later.
Banks tied to a common documentation: All participating banks have a common document, which is administratively easier for a Borrower.
Borrower initiates relationship with several Banks: Borrower can initiate relationship with several banks at one go, which can then be enhanced on a bilateral basis.
Documentation is LMA standard: Documentation is LMA (Loan Market Association) standard rather than bilateral documentation of individual banks.
Dealing with Facility Agent: Borrower needs to deal with Facility Agent rather than individual participating lenders for administration of Facility, which is logistically efficient.