A syndicated debt is structured in such a manner that needs proper management and administration. This is achieved through a third party since a number of lending parties are involved.
Debt syndication offers a large loan with manageable and wise credit exposure since the associated risks are shared with the other lenders.
This service is most needed when a borrower needs an amount that is too large for a single loan provider or when the debt goes beyond the level of risk exposure of the lender. Therefore, many lenders come together forming a syndicate so that the borrower receives the requested amount of money.
In this situation, one of the lenders acts as the manager or arranging bank and it works by administering the loan on behalf of the other lenders as well. This syndicate could be a coalescing of several types of loans that come with varying repayment terms which are agreed upon at the time of negotiation between the borrowing and lending parties.
Syndication, as well as syndicated solutions, were previously used by concerns that had huge resources and used copious amounts of funds for projects. But in recent times, the situation has altered in various ways and today, it is not just large corporations but SMEs also seek debt syndication.
It is required for financing power plants, refineries, steel plants and also for funding mergers, acquisitions, and takeovers. As a rising number of companies are coming to play their part in the Indian market, we can expect the fund requirements to grow in the coming days.
This agreement needs to be managed by an experienced corporate risk manager so that it doesn’t lead to any misunderstanding in the future. Also, the legal counsel of the company can also be engaged in enforcing contractual obligations and loan covenants.
Features of Debt Syndication
Debt syndication offers a number of benefits the reason for which different companies are opting for this type of finance for their business. Here are a few features of debt syndication:
Every single installment of debt syndication is funded by a group of lenders and this is known as a tranche. So, in this tranche, a particular amount or even the whole amount of the agreement is made available to the borrowing company. In other words, a tranche is a kind of commitment that is granted to the borrower.
It is also a commitment for the borrower for availing the funds that are given under the agreements of the tranche. When the terms and agreements of the tranche are finalized, the schedules for the actual loan under the tranche are given to the customer. The tranche directs the participants to fulfill their responsibilities each time the schedule is due.
2. Defining products
In simple words, any scheme or service that is made available to the customer is defining a product. For example, a bank could be entering into agreements for lending with other financial institutions for disbursing the requested loan amount. This procedure of disbursing the debt syndication can be called product defining.
After the fulfillment of commitments, the borrower is able to access the funds under the tranche. This process is termed drawdown loans. The period of drawdown loans lies between the span of start and end date of the main contract for debt syndication.
4. Swing Lines
When the borrower requests for a certain amount of drawdown payment, it may so happen that there is a delay of 1 or 2 days for various reasons such as documentation, legal formalities, or other reasons. But if the borrower is in urgent need of funds, it can be achieved through a swing line. It is basically an ad hoc line that traverses from lender to borrower for a short span of time. It is available only for bearing and normal contracts.
Presently we have a flexible pricing plan for debt syndication. The cost would vary from company to company and needs:
signing amount plus 1% of raised fund.
- Financials Scrutiny
- Auditing Financial Documents
- Document Processing
- All other process requirements
We are always keen on answering all your queries. Here is a list of a few frequently asked questions on debt syndication:
Why do I need debt syndication?
When you want to undertake any capital-intensive project, then it is obvious you will need a huge amount of finance which is achieved through debt syndication. As debt syndication offers a comparatively higher limit for loans, there is no fear of risking the credit exposure. As a result, the loan requirement can be increased as per requirements.
How much time is taken for disbursal of loans?
One of the greatest benefits of debt syndication is the efficient delegation of power. Depending on the amount of loan you require, debt syndication may take somewhere between 1 week to three months to process.
What are the various debt syndication services available?
The most common form of debt syndication is the personal funding of individuals. However, other kinds of debt syndication include project financing, working capital loans, term loans, corporate loans, structured finance, trade finance, promoter finance, loan against shares, and others like overseas funding.