Critical Coverage of Syndicated Loan Agreement
Almost daily, we see the birth of many new innovative projects. These projects are formed with the investment of billions of dollars. Most people just think, where comes this huge amount. Banks play an important role in lending loans or funds to their clients. Sometimes the loan amount is so much So not only one member, but a group of people are involved in this lending process. Or more than one lender is involved in providing these excessive funds.
What about syndicated loan
The syndicated loan also referred to bank facilities. It involved a group of lenders that issued depts to single borrowers. The investment is a credit line or fixed amount, or sometimes both. The lenders are under big banks for a syndicated loans through insurance companies and mutual funds. The one person is a leader that leads the whole syndicated group. It is responsible for the allocation or facilitation of funds to other lenders.
Kinds of syndicated loan
The syndicated loan includes the following types.
• Club deal
This type of syndicated loan involves small cash amounts. The range of this amount is about $50 million $150 million. The best feature of this type is the leader of this group share an equal amount with all members that they get through the loan facility.
• Underwritten deal
It is the common type of syndicated loan that use in Europe. The underwritten or lead agent indicates or guarantees the whole amount in this type of loan.
• Best efforts deal of syndication
It is a common type of syndicated loan that use in the United States. It is not giving a guarantee of the whole loan amount.
Features of syndicated loan
It includes the following features:
• It includes a larger amount or for the long term. It can meet all demands of borrow.
• Less effort or time for financing. It is the responsibility of a leader to establish the whole process of agreement that the burrow will agree with the loan terms.
• It includes diversified approaches to loans. It includes many types of loans like revolving loans fixed term loans.
• A successful syndicated loan process benefits all borrowers to build a solid reputation in the market.
Interest rates of syndicated loan
_the price is composed of the syndicated loan by loan fees and interests
_interest rates of lending set for various borrowers.
Charges of syndicated loan
Charges of this loan include underwritten fees, arrangement fees, commitment fees or agency fees.
Who applicants are eligible for a syndicated loan
There are two types of people who are eligible to take syndicated loans. These are:
- Applicants want a loan of a larger amount or for the long term.
- The applicants that are having great reputation in the market. The people their financial ability, technical strength, or operation ability are well known among most banks.
Requirements of applications
• A borrower should be a businessman or enterprise. Its economic organization is registered or approved legally.
• The borrower should meet all requirements of the agreement.
• The borrow should manufacture medium or large projects or enterprises with better financial or operational strength. It may have strong competition among industries or have better plans.
• To join the set up of syndicate with other banks, the bank that arranged it should behave operational strength and sufficient credit.
Documents required for a syndicated loan
There are following documents required for this purpose:
• Relevant information about borrowers or their guarantors or shareholders.
• Article of association or business license of borrowers
• The financial statements of borrowers with the latest performance of three years.
• It required equipment for purchase contracts, specific contracts, sale or supply contracts, or construction contracts.
What's the procedure for a syndicated loan
The procedure includes:
• It receives information on loan or tender documents of borrowers
• It negotiates with borrowers to draft a loan list with all financing terms and structures.
• The lead bank that is appointed for it is the Bank of China. It is considered the underwritten principal bank.
• bank of China confirmed the amount of the loan
• It includes determining a proper schedule and making a strategy or list of syndicate invitations.
• It prepares the memorandum loan information or letter of invitation. Later send these invitations to the financial institutions.
• The participants undertake the amount of subscription
• Confirm the limit of the final loan
• Both parties then agree to sign the guarantee or loan agreement.
• Then they signed an agreement.
• After that, the agent bank does the next work.
Agreement of syndicated loan
The agreement of syndicated loans is provided in various forms. It contains different provisions that depend on the various circumstances. It involves a huge money amount or credit relationships among various or multiple parties. It is important to read out a whole agreement before getting a loan. It also contains some clauses. It balances the lender's interests and the borrower's freedom. The important elements including in the agreement of syndicated loan.
Covenants of syndicated loan
Before taking syndicated loans, the lenders and borrowers go through the agreement process. This contract is designed according to the syndicated loan's time, rules or structure. It is underwritten agreement that looks like a subscription agreement. There are two kinds of covenants involved in the syndicated agreement.
These are:
• Financial covenants
These covenants make sure that borrower will meet their legal needs. Its basic purpose of it is to protect the burrower's interests. It makes sure that the burrowers can return the amount in all circumstances. The business of lenders only will be run when there is equality among cash flow or get repayment of loan on time. If there is not a balance of equality among investments, then it will affect the business. These financial covenants become able lenders to figure out all metrics. It ensures that burrowers sign the agreement and pay back the amount on time.
• Negative covenants
Voting rights are given to financial investors in these covenants on particular issues.
Clauses of the syndicated loan agreement
The syndicated loan agreement also includes many clauses. These clauses include:
- Mandatory payment clause
- Negative pledge clause
- Change of control clause
- Material adverse effect clause
- Right to accelerate
- Cross-default
However, the syndicated loan agreement is just like the commercial contract. This agreement is important to build a relationship between lenders and borrowers. This relationship is vital if two parties want to benefit each other. Moreover, not all people have proper knowledge about syndicated loan agreements. They can take law assignment help UK to get information about all law topics.