If it doesn’t happen, the borrower is offered a smaller loan. If some part of the loan isn’t covered, the group waits until the market conditions change. In the best efforts deals, the lender doesn’t provide any guarantees. If some part of the deal isn’t subscribed, the lead arranger can cover it. In the theory of syndicated loans there are three types of products:Ĭlub deal is frequently used for small-scale loans where syndicate members share equal or almost equal parts of the loan.įully underwritten loans are fulfilled entirely by the lead arranger. With specialized loan management software, banks can put some steps on autopilot. The lead arranger, the CitiBank, takes on the administrative responsibility for the entire loan life cycle (loan funding, dispersing principal and interest payments to syndicate members). Each lender’s liability is limited to their share of the loan interest. For instance, the Citibank can pledge 30% as the originator while the other member’s stake varies from 20% to 25%. A stake is based on the banks’ credit tolerance levels. To determine the loan risk and the client’s solvency, the originator checks the client’s financial health and runs due diligence.Įach member provides funds according to the percentage of the overall risk they agree to take. To reduce the risk, the bank sources prospective members to fund the loan. Once the borrower has requested financial support from the originator, it conducts KYC checks. The first is in charge of exercising the rights of the borrower and lender, the second holds the security of the assets of the borrower on behalf of the lenders. A governmental body monitoring the process and verifying the compliance of activities to AML standards.Īlso, there may be other participants – Agent and Trustee. A borrower (company, corporation, trust) requesting a bank loan. Several investors united into one entity to distribute the risk across institutions for large transactions. A bank/financial institution that guides the group through loan underwriting and financing. Source: Deloitte Key participants and their roles Experts say that the largest syndicate consisted of 43 banks dated back to 1991. The number of syndicate members may vary and there’s no cap for the group size. Understanding banking pools and syndicated loans LenderKit – versatile syndicated loans and P2P lending software.Understanding banking pools and syndicated loans.