What is 'Loan Syndication'

Loan syndication is the process of involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may be too much for a single lender to provide or outside the scope of a lender's risk exposure levels. Thus, multiple lenders work together to provide the borrower with the capital needed.

BREAKING DOWN 'Loan Syndication'

Loan syndication is used in corporate borrowing. Companies seek corporate loans for a wide variety of reasons. Loan syndication is commonly needed when companies are borrowing for mergers, acquisitions, buyouts and other capital projects. These types of capital projects often require large loans, thus loan syndication is mainly used in extremely large loan situations.

Loan syndication allows any one lender to provide a large loan while maintaining a more prudent and manageable credit exposure because the lender is not the only creditor on the deal. Large capital projects for corporate borrowers often need very large sums of capital to complete the transaction; therefore, more than one single lender is often relied upon for loan funding. Within the loan syndication process, terms from all of the lenders on the deal are typically the same although they may vary. Collateral requirements by the lenders can often vary considerably. Usually there is only one loan agreement for the entire syndicate.

Lead Financial Institution

For most loan syndications, a lead financial institution is used to coordinate all aspects of the deal. The lead financial institution is often known as the syndicate agent. This agent is also often responsible for all aspects of the deal including the initial transaction, fees, compliance reports, repayments throughout the duration of the loan, loan monitoring and overall reporting for all lenders within the deal. A third party or additional specialists may be used throughout various points of the loan syndication or repayment process to assist with various aspects of reporting and monitoring. Loan syndications often require high fees because of the vast reporting and coordination required to complete and maintain the loan processing. Fees can be as high as 10% of the loan principal.

In 2015, Charter Communications topped the list of leveraged loan-funded syndications at $13.8 billion for its merger with Time Warner Cable. Credit Suisse was the lead syndicator on the deal. In the United States loan market, Bank of America Merrill Lynch, JPMorgan, Wells Fargo and Citi are the industry’s leading syndicators of loans.

The Loan Syndications and Trading Association (LSTA) is an established organization within the corporate loan market that seeks to provide resources on loan syndications. It helps to bring together loan market participants, provides market research and is active in influencing compliance procedures and industry regulations.

RELATED TERMS
  1. Syndicated Loan

    A loan offered by a group of lenders (called a syndicate) who ...
  2. Syndicate

    A professional financial services group formed temporarily for ...
  3. Competitive Bid Option

    A form of the commercial loan syndication where banks submit ...
  4. Underwriter Syndicate

    A temporary group of investment banks and broker-dealers who ...
  5. Paid Syndication

    Web syndication is the promotion or inclusion of content on a ...
  6. Agent Bank

    A bank that acts in some capacity on behalf of another bank. ...
Related Articles
  1. Investing

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  2. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  3. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  4. Investing

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  5. Personal Finance

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  6. Personal Finance

    What Does a Lender Do?

    A lender provides funds to another with the expectation those funds will be repaid with interest.
  7. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  8. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
  9. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
RELATED FAQS
  1. What is considered a reasonable interest rate for a syndicated loan?

    Discover how syndicated loans work, why they are beneficial for businesses, and what is considered a reasonable interest ... Read Answer >>
  2. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ... Read Answer >>
  3. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  4. What’s the Difference Between a Mortgage Lender and a Mortgage Servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center