SYNDICATED CREDIT – IMPORTANT FEATURES :
The syndicated credit is a loan offered by a group of banks to a borrower. The lenders give loan/s against a common loan document specifying the terms and conditions as agreed to between the lenders (who have formed the syndicate) and the borrower. Usually, the syndicated credit is in the form of euro currency or denominated in US$. Generally, these credits are designed based on the floating interest rates.
Parties to a syndicated loan agreement and their role:
(a) Following are generally, the parties to International Syndicated Loan (other than the borrower, guarantor and the group of lenders): i) Arranger or Mandated Lead Arranger ii) Book Runner iii) Agent iv) Security Trustee.
(b) (i) The arranger is responsible for advising the borrower as to the type of facilities required and then negotiating the broad terms and conditions for those facilities. ii) Book Runner invites Banks to join the syndicate and keep a record of how much debt each of the potential syndicate members wants to take. (iii) Agent: one bank from the syndicate is appointed as Agent of lenders and acts as- Point of contact (between the borrower and the lenders) – monitors compliance of terms of the facility by the borrower- acts as a postman and record keeper- (borrower usually gives notice to the Agent) – the borrower makes all payments to the Agent who passes on these monies to syndicate members as per their share. iv) Security Trustee –He holds the security on trust for the benefit of all lenders.
In case of international loan agreements, banks and clients would incorporate an express choice of law clause within the terms of the contract documents. In case, if express choice is not mentioned, the contract would be governed by the system of law with which the transaction has its closest and most real connection. Another important aspect for the banks is to identify and determine
– the enforcement in the borrower’s own jurisdiction, and/or
– in such jurisdictions where the borrower’s assets are situated
The important aspects of the international loan agreement/s are:
– Clarity: The various terms and conditions are clearly mentioned. The borrower’s status, incorporation, financial projections and other important aspects are clearly indicated
– Clearance/s: The loan agreement should specify the various clearances which are to be obtained by the borrower from government and regulatory authorities in the country, before any draw-down is allowed
– Condition/s: (i)The loan agreement should specify the procedure for the drawdown of the loan, the commitment period, method of draw down etc., (ii) Repayment schedule should be clearly indicated, and the pre payment option should also be clearly incorporated in the agreement
– Commitment fee/s: The loan agreement should clearly specify the commitment fees, front-end fees and interest payable (floating or fixed) indication of interest rate as LIBOR + 75 basis points etc.,
– Confirmation: The loan agreement should confirm the methodology of the application of LIBOR. Generally the agent bank would find out the offered rates of a group of “reference banks” on a rollover day and the average is the applicable LIBOR.
– Cross-Default, Jurisdiction and Sovereign Immunity: Certain important clauses, if properly vetted would assist the lender in case of recovery.
Jurisdiction: The loan agreement should specify the place (jurisdiction) whose laws are applicable to the interpretation of the rights and obligations under it.
Cross-default: Cross-default clause allows the lenders the right to accelerate recovery of the loan in the event of default by the borrower or the guarantor/s under any other loan agreement
Sovereign immunity: An express waiver of sovereign immunity, is obtained from the borrower or guarantor as the case may be