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COMMERCIAL FINANCE 701 — Syndications: a super-sized credit facility with multiple lenders



To fulfill whopping credit needs, a corporate borrower may need to avail itself of a syndicated loan.  This article attempts to define, distill and distinguish this divergent financing vehicle.

What is a Syndicated Loan or Loan Syndication?

As too common in business jargon, “syndicated loan” and “loan syndication” are not precisely defined or uniformly employed terms.  To get us started, we will summarily describe a loan syndication as a super-sized credit facility involving multiple lenders (called co-lenders) offering a comprehensive financing arrangement for borrower needs exceeding the flexibility or capacity of a single lender or a small group of lenders. The structure may include both banks and non-bank lenders and will likely exceed $25,000,000.  We’ll refine the definition as we discuss the topic.

What it is not.

A syndicated loan is NOT a bilateral loan or a participated loan.  A bilateral loan is the most common loan structure in which a single lender makes a loan to a borrower.  A participated loan involves what appears to be a single lender – at least from the face of the promissory note – with other lenders sharing in the loan via a participation agreement. Borrowers are not always aware of underlying participations.  (See Participations: One loan and multiple banks, Mississippi Business Journal, July 9, 2015.)

Common and Distinctive Components.

Common features of loan syndications are (1) big money, (2) a lead lender with the title of Administrative Agent handling the paperwork and managerial duties for the lender group, (3) multiple lenders, (4) provisions allowing co-lenders to come and go from the facility, (5) an electronic platform (such as IntraLinks) for sharing due diligence materials, loan documents and reports, (6) a lengthy credit agreement with provisions covering both imaginable and improbable occurrences, and (7) lots of titles (such as admin agent, arranger, underwriter, collateral agent, bookrunner, and syndication agent).   Important decisions are oftentimes the province of a supermajority of the creditors (assume 66 2/3rds vote). Critical issues (reduction in interest rate, extension of maturity, and waiver of various covenant defaults) tend to require approval of 100% of the creditors.

Complicating Factors

A relatively simple loan syndication might involve a single (albeit sizeable) revolving line of credit, with borrowings tied to a borrowing base formula (such as receivables or inventory) and lenders sharing interest and fees pro-rata based on their respective commitments.  But there might be multiple facilities – such as a term, revolver, letters of credit and/or a construction piece – with different lenders participating in those various facilities at varying levels.  To avoid the nuisance of lenders funding draws on a daily basis, one lender might have the role of “swing line lender” and fund advances pending a weekly settlement.

An even more complicated situation arises when non-banks join the ranks of banks in a syndicated loan.  The various lenders – banks, insurance companies, and funds – will have different cultures, policies and regulators, and will be subject to dissimilar disclosure obligations and privacy laws.

Fees and Costs

Loan syndications with traditional bank lenders usually include a lead bank arranger receiving a one-time arranger fee, which is separate and apart from an origination fee and the unused fee on a line of credit.  On an ongoing basis, there will be an annual administrative agent fee and charges for periodic field audits or appraisals.  In deals involving underwriters and non-bank lenders, the rules are different and the transactions tend to be more fee-intensive.

The Regulators

The FDIC somewhat accurately distinguishes a syndicated loan from a participated loan as follows:  “lenders in a syndication participate jointly in the origination process, as opposed to one originator selling undivided participation interests to third parties.”  The agency avers the “average commercial syndicated credit is in excess of $100 million” and beneficially meets “basic needs of lenders and borrowers” by “raising large amounts of money, enabling geographic diversification, …[generating] working capital quickly and efficiently, spreading risk for large credits amongst banks, and gaining attractive pricing advantages.”

To avoid duplication of examination, three federal agencies (FDIC, Federal Reserve Board, and the Office of the Comptroller of the Currency) participate in the Shared National Credit (SNC) Program in which a syndicated loan is reviewed annually at the lead bank’s office only and the assigned rating is reported to the other co-lenders. The Comptroller of the Currency states the “snick” program covers any loan or loan commitment of at least $20 million that is shared by three or more supervised institutions.

Why use a Loan Syndication?

In addition to the benefits noted by the FDIC above, a syndicated loan can provide an enduring financing vehicle to a borrower that alleviates the typical impetus for refinancing.  Higher fees on the front end may be offset by a continuing facility and less frequent refinancings.  The lithe structure can assuage issues that would otherwise arise from (i) a bank’s house limit on total dollars to a single borrower, a single industry or a single geographic region; (ii) a bank’s appetite; and (iii) multiple lenders loaning big dollars and desiring visibility in a transaction. As the borrower’s needs grow, the facility can be increased by adding new co-lenders to supplement the existing lenders who have reached their house limits.  Additionally, if a co-lender finds itself with excessive saturation in a particular industry or geographic area, then that co-lender can reduce its exposure or exit the facility (in lieu of a borrower facing a non-extended maturity) via a transfer to an eligible assignee.


A loan syndication is a niche financing structure that serves an important need of sizable corporations.  As the saying goes, demand creates its own supply.   And to quote the implausible Republican presidential frontrunner Donald John Trump, “As long as you are going to be thinking anyway, think big.”

» Ben Williams and Molly Jeffcoat Moody  are attorneys engaged in an active commercial law practice at Watkins & Eager PLLC.   Ben and Molly are both recognized by Chambers USA and Best Lawyers in America.   Ben was selected as Best Lawyer’s 2016 Project Finance Lawyer of the Year in Jackson, Mississippi.   Additional information is available at www.watkinseager.com.


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