Chapter 2 - Attractions of the syndicated loan market

Abstract

The syndicated loans market exists because there are attractions and benefits to each of the parties involved. This chapter explores these attractions and benefits. The first attraction is that the borrower need not be resident in the country in which the loan is arranged, so long as it does not breach any law or regulation in its country of residence. The borrowing company may choose to use a particular subsidiary as the borrower under the terms of the loan agreement, such as an existing subsidiary company. The arranger can be extremely useful to the borrower in advising on the structure which would be acceptable to the overall banking market, and the margin and fees which the participants would expect to receive. Apart from this, the borrower usually deals with only one bank, the arranger, in negotiating the terms and conditions of the syndicated loan, rather than having separate discussions with a large number of different banks. It also minimizes its accounting functions by receiving one payment from the agent when the loan is drawn and making only one payment to the agent when repayment is due.