BENJAMIN C.

ESTY

Chase's Strategy for Syndicating the Hong Kong

Disneyland Loan (B)
After consulting with Disney, Chase opted for the sub-underwriting strategy for the HK$3.3
billion financing, and invited seven banks to make underwriting commitments of HK$600 million in
return for lead arranger titles and sub-underwriting fees of 25 basis points (bp). Shortly after
launching the sub-underwriting, however, Chase announced it was merging with J.P. Morgan to
form a new company known as J.P. Morgan Chase & Co. The merger, which was not expected to
close until the end of the year, did not affect the Hong Kong Disneyland transaction. In fact, by late
September, six banks had agreed to participate at HK$600 million each (seven sub-underwriters *
HK$600 million = HK$4.2 billion), forcing Chase to scale-back their exposures to HK$471 million each
(seven sub-underwriters * HK$471 million = HK$3.3 billion). Through the general syndication, it
hoped to reduce the sub-underwriters’ commitments to final hold positions of HK$300 million or
less.

One week later, Chase launched the general syndication with invitations to 67 banks. The
invitations offered three different levels of participation: an arranger tier for commitments of HK$250
million with a up-front fee of 70 bp, a co-arranger tier for commitments of HK$150 million with a fee
of 60 bp, and a lead manager tier for commitments between HK$75 million and HK$100 million with
a fee of 50 bp. All commitments had to be pro rata for the HK$2.3 billion construction term loan and
th
the HK$1 billion revolving credit facility, and had to be received by October 25 . Chase reserved the
right to close the syndication early if it received sizeable commitments quickly and to make final
allocations among the banks as it saw fit.

The general syndication was a resounding success, generating commitments totaling HK$5.3
billion from 25 banks. Counting the HK$4.2 billion in commitments from the seven sub-
underwriters, Chase had approved credit commitments totaling HK$9.5 billion, an over-subscription
of close to three times (see Exhibit 1). Of the 42 banks that declined to participate, 25 cited concerns
about the tenor (final maturity), eight cited concerns over pricing, three cited concerns about funding
a HK dollar loan, three cited concerns over HK exposure or credit, and three declined because they
had not gotten internal credit approval for the deal. In deciding how to proceed with the over-
subscription, Harris commented:

Frankly, it’s not fun. It’s a high-class problem, but it’s nevertheless a problem. We
determine the final takes based on three criteria: fairness—giving the banks as close to
what they committed as possible; consistency—making sure the scale-back is
consistent for all banks within a given tier; and client considerations—giving
appropriate weight to the client’s preferences on such things as final allocations for
specific banks or voting rights within the bank group.
________________________________________________________________________________________________________________
Dean’s Research Fellow Michael Kane prepared this case under the supervision of Professor Benjamin C. Esty. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.

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 Chase's Strategy for Syndicating the Hong Kong Disneyland Loan (B)

With these considerations in mind, the team began to discuss the scale-back percentages that would
enable them to get to the final HK$3.3 billion closing level.

Exhibit 1 General Syndication Feedback as of October 27, 2000 (HK$ in millions)

Committed
Bank Bank Nationality Remarks (Date) Amount

Lead Arrangers/Sub-Underwriters (25 basis points)

1 BNP Paribas France $600
2 Bank of China (BOCI) Capital China 600
3 Chase Manhattan Bank U.S.A. 600
4 Crédit Agricole Indosuez France 600
5 Fuji Bank Japan 600
6 HSBC Investment Bank U.K./Hong Kong 600
7 Standard Chartered Bank U.K./Hong Kong 600
Sub-Total From Lead Arranger Banks $4,200

Arrangers (70 basis points)

1 Abbey National Treasury Services plc U.K. Committed (10/23) 250
2 Agricultural Bank of China China Committed (10/19) 250
3 Banca Nazionale del Lavoro Italy Committed (10/20) 250
4 Bank of Communications China Committed (10/25) 250
5 Bank of East Asia Hong Kong Committed (10/25) 250
6 Bank of Tokyo-Mitsubishi Japan Committed (10/24) 250
7 Bayerische Landesbank Germany Committed (10/25) 250
8 Chekiang First Bank Hong Kong Committed (10/25) 250
9 China Construction Bank China Committed (10/24) 250
10 DG Bank Germany Committed (10/25) 250
11 Hang Seng Bank Hong Kong Committed (10/20) 250
12 ICBC Asia China Committed (10/24) 250
13 Industrial and Commercial Bank of China China Committed (10/19) 250
14 Keppel Tat Lee Bank Limited, Hong Kong Singapore Committed (10/24) 250
15 Overseas Union Bank Singapore Committed (10/24) 250
16 Shanghai Commercial Bank Ltd. Hong Kong Committed (10/25) 250
17 Wing Hang Bank Hong Kong Committed (10/20) 250
18 Wing Lung Bank Ltd. Hong Kong Committed (10/25) 250

Co-Arrangers (60 basis points)

19 Asia Commercial Bank Hong Kong Committed (10/20) 150
20 Bank Austria Creditanstalt Austria Committed (10/24) 150
21 Sanwa Bank Japan Committed (10/25) 150

Lead Managers (50 basis points)

22 Dah Sing Bank Hong Kong Committed (10/24) 100
23 International Bank of Asia Hong Kong Committed (10/24) 100
24 CITIC Ka Wah Bank Hong Kong Committed (10/25) 75
25 Liu Chong Hing Bank Hong Kong Committed (10/24) 75
Sub-Total From Syndicate Banks $5,300
Total Commitments From All Banks $9,500

Source: Internal company documents.