Loan Syndication

Group Members: Ashutosh Kumar Anshu 22-4734

Abhishek Rawani 22-4754
Priyansu Gupta 22-4718
Dipak Jain 22-4722
Ronak Shah 22-4762
Kumar Dheeraj 22-4777
 INTRODUCTION

"Loan syndication" refers to the process of involving a group of lenders that fund
various portions of a loan for a single borrower. Loan syndication most often
occurs when a borrower requires an amount that is too large for a single lender
or when the loan is outside the scope of a lender's risk exposure levels. Multiple
lenders pool together and form a syndicate to provide the borrower with the
requested capital.
 Types of loan syndicate

3. Underwritten Deal
Lead agent can absorb the
1. Club Deal
undersubscribed portion if
This syndication is of a
smaller amount, up to $150
the loan is not fully
million. In this, all the
required
members of the club have an
Loan Syndicate equal share. Again, this
borrower may arrange the
club, or an arranger may be
involved

Best-Efforts Syndication
Lead Bank is not committed to
guaranteeing the loan amount
required by the borrower and
undertakes to find other lenders
Type 1. UnderWritten Deal

The lead agent guarantees the entire loan. the lead agent can absorb the undersubscribed
portion if the loan is not fully required.

This loan syndication attracts higher service fees. These loans have an
increased risk, making a huge profit for the bank.
Type 2 : Best - Effort Syndication
*The lead bank is not committed to guaranteeing the loan amount required by the borrower and undertakes
to find other lenders to provide commitments for the remainder.

* It will fill up any undersubscribed portion of the loan by taking advantage of the changes in the market
condition. If the loan is continuously undersubscribed, the borrower may be forced to accept a lower
amount of loan or cancel it.
Type 3: Club Deal
This syndication is of a smaller amount, up to $150 million. In this, all the members of the club have
an equal share. Again, this borrower may arrange the club, or an arranger may be involved.

Club deal usually entails a smaller amount, typically between $25 and $150 million. The main
feature that makes this type of syndicated loan unique is the fact that the lead agent and other
members of a club deal consortium all share equal, or nearly equal, parts of the fees earned from the
loan facility
 Features of Loan Syndication
● Large amount.
● No separate agreement between an individual bank and the borrower.
● No ambiguity used to be there.
● The length of the contract is generally between 3 to 15 years.
● Low risk is found in loan syndication.
● Each bank is not necessarily to contribute an equal amount.
Advantages
● Financing takes less time and effort.
● The administration of the loan is extremely efficient.
● It is beneficial for borrowers to establish a good market image.
● Borrowers have flexibility in structure and pricing.
● The borrower need not go to each bank and not apply separate applications to all banks.
● The purpose and period of the loan are fixed.
● The system is simple.
Disadvantages
● Time-consuming process since negotiating with the bank can take various
days. Thus, loan syndication is a time-consuming process.
● Borrowers may also be adversely affected by syndicated loan agreements.
● If the problem arises, it may be difficult for borrowers to satisfy all banks
simultaneously.
● Managing the relationship between multiple parties is a difficult task.
● If profitability fails, the smallest bank withdraws its capital.
Process of loan Syndication

1. Initial discussion with promoters should be there.

2. Then, a project assessment is required.
3. Availability of alternatives for sources of funds needs to be done.
4. Then, a preliminary discussion with lenders should be done.
5. Then there is a requirement to prepare of loan application and follow
up on it.
6. Assisting in project appraisal by doing financial analysis.
7. Lastly, one should obtain a Letter of Credit from a lending institution.
Thank You