Blog: Legal Lingo: What Is A Syndicated Loan? – Project Finance/PPP … – Mondaq

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Legal Lingo: What Is A Syndicated Loan?

18 January 2023

Ropes & Gray

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Being an aspiring commercial lawyer often means being confronted
by complex, often abstract, concepts leading to an often
impenetrable wall of jargon for students and trainees. Next up in
our Legal Lingo series, which we’ve introduced
to help break down this jargon, is an explanation of what a
syndicated loan is.

Large scale financing – be it for project finance,
acquisition finance or working capital – often requires more
than one lender. A syndicated loan is an arrangement whereby a
group of lenders (the syndicate), which may consist of banks and/or
non-banks, provide funds to a borrower.

The syndicated loan facility may comprise a single loan facility
or a variety of facilities such as a term loan, a revolving credit
facility, a letter of credit facility, a swingline facility or
other similar financing arrangements. Together, these make up a
total facility commitment under a single facility agreement which,
in the European market, is usually largely based on the recommended
forms of primary syndicated loan agreements produced by the Loan
Market Association.

At the outset of the deal, the borrower mandates one or more
financial institutions to act as mandated lead arranger(s) (MLAs)
to negotiate the terms of the facility agreement. Once the MLAs
have sold down parts of the total loan amount to interested lenders
in the primary market, the loan is syndicated.

The MLAs often keep a larger portion of the loan on their
balance sheets while the other lenders often sell their tranches on
the secondary market. A lender in the syndicate (usually the MLA)
will act as facility agent to administer the loan and, if the
syndicated loan is secured, the facility agent (or other lender)
will typically act as security trustee.

Syndication is generally beneficial to lenders as they can
participate in a variety of financings of different sizes and split
the overall commitment with other lenders. This reduces their
exposure to risk as each lender’s liability is contractually
limited to the amount of its own commitment. With access to more
lenders, borrowers are better able to secure loans of a greater
quantum and fund bigger projects.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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