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Parties and Their Roles Within The Syndication

The main parties involved in a loan syndication process are the lead bank, participating banks, and sometimes an underwriting bank or facility manager. The lead bank is responsible for placing the syndicated loan with other banks and appraising the borrower. The underwriting bank guarantees any unsubscribed portion of the loan. Participating banks lend a portion of the total loan amount and charge participation fees. The facility manager handles administrative arrangements over the loan term, such as disbursements and repayments. Each party takes on different risks like reputation risk, underwriting risk, or normal credit risk of borrower default.

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Farjana Hossain Dhara
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109 views1 page

Parties and Their Roles Within The Syndication

The main parties involved in a loan syndication process are the lead bank, participating banks, and sometimes an underwriting bank or facility manager. The lead bank is responsible for placing the syndicated loan with other banks and appraising the borrower. The underwriting bank guarantees any unsubscribed portion of the loan. Participating banks lend a portion of the total loan amount and charge participation fees. The facility manager handles administrative arrangements over the loan term, such as disbursements and repayments. Each party takes on different risks like reputation risk, underwriting risk, or normal credit risk of borrower default.

Uploaded by

Farjana Hossain Dhara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PARTIES AND THEIR ROLES WITHIN THE SYNDICATION

PROCESS

The lead bank and participating banks are the main parties involved in loan syndication. In large loan
amounts, sometimes there are four parties involved, other than the borrower, in the syndication process.
These are arranger {lead manager/ bank}, underwriting Bank, Participating Banks and the facility
manager agent. Their roles are defined as follows:-

1. Arranger/lead manager: - It is a bank which is mandated by the prospective borrower and is responsible
for placing the syndicated loan with other banks and ensuring that the syndication is fully subscribed.
This bank charges arrangement fees for undertaking the role of lead manager. Its reputation matters in the
success of syndication process as the participating banks would agree or disagree based on the credibility
and assessment expertise of this bank. In other words, since the appraisal of the borrower and its proposed
venture is primarily carried out by this bank, onus of default is indirectly on this bank. Thus this bank
carries ‘reputation risk’ in the syndication process.

2. Underwriting bank: - Syndication is a process of arranging loans, success of which is not guaranteed.
The arranger bank may underwrite to supply the entire remainder (unsubscribed) portion of the desired
loan and in such a case arranger itself plays the role of “underwriting bank”. Alternatively a different
bank may underwrite (guarantee) the loan or portion (percentage of the loan). This bank would be called
the “underwriting bank”. It may be noted that all the syndicated loans may not have this underwriting
arrangement .Risk of underwriting is obviously the “underwriting risk”. It means it will have to carry the
Credit risk of the larger portion of the loan.

3. Participating banks: - These are the banks that participate in the syndication by lending a portion of the
total amount required. These banks charge participation fees. These banks carry mostly the normal
credit risk i.e. risk of default by the borrower. As like any normal loan. These banks may also be led into
passive approval and complacency risk. It means that these banks may not carry rigorous appraisal of the
borrower and has proposed project as it is done by the lead manager and many other participating banks.
It is this banker’s trust that so many high profile banks cannot be wrong. This may be seen in the light of
reputation risk of the lead manager.

4. Facility manager/agent: - Facility manager takes care of the Administrative arrangements over the term
of the loan (e.g. Disbursements, repayments and compliance). It acts for and on behalf of the banks. In
many cases the arranging/underwriting bank itself may undertake this role. In larger syndications co-
arranger and co-manager may be used.

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