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Banking > Lendings > Global Lendings > Syndicated Credits

Syndicated Credits

A traditional 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, amortisation in semi-annual installments, and interest rate reset every three or six months with reference to LIBOR.

In some cases, when the parties-lenders and borrower- do not wish to publicize the deal, standard practice is dispensed with and a credit is arranged on a private basis between the group of leading banks and the borrower. These are known as Club Loans.

A revolving credit is similar to the above but permits greater flexibility in the draw down and repayment schedules allowing the borrower to repeatedly draw the loan or a portion thereof and to repay what it has drawn at its discretion or according to a formula.

In a standby facility, the borrower is not required to draw down the loan during a fixed, pre-specified period. Instead, he pays a contingency fee till he decides to draw the loan at which time interest begins to accrue.

Syndicated loans can be structured to incorporate various options. As in the case of FRS, 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 rollover date.

Security in the form of government guarantee or mortgage on assets is required for borrowers in developing countries like India.

The cost of a loan consists of interest and a number of fees-management fees, participation fees, agency fees and underwriting fees when the loan is underwritten by a bank or a group of banks. Spreads over LIBOR depend upon borrower's credit worthiness, size and term of the loan, state of the market (e.g. the level of LIBOR, supply of non-bank deposits to the EURO banks,) and the degree of competition for the loan.

Click here for Guidelines on ECBs-External Commercial Borrowings.


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