Syndicated Loan

AAA

DEFINITION of 'Syndicated Loan'

A loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or a sovereignty (such as a government). The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR).

Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or "lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks.

Also known as a "syndicated bank facility".

VIDEO

Loading the player...

BREAKING DOWN 'Syndicated Loan'

The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding.

Syndicated loans can be made on a "best efforts" basis, which means that if enough investors can't be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans).

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Lead Bank

    A bank that oversees the arrangement of a loan syndication. The ...
  3. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
  4. Tranches

    A piece, portion or slice of a deal or structured financing. ...
  5. Underwriting

    1. The process by which investment bankers raise investment capital ...
  6. Revolving Credit

    A line of credit where the customer pays a commitment fee and ...
Related Articles
  1. Credit & Loans

    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. Mutual Funds & ETFs

    Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  3. Options & Futures

    Hedge Fund Failures Illuminate Leverage Pitfalls

    Learn what mistakes cause hedge funds to collapse and how to avoid similar problems.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Active Trading Fundamentals

    This Is How 3 Investors Made a Billion Dollars

    Read about three major hedge fund managers who are worth at least $1 billion and who made large amounts of money on a single trade idea.
  6. Investing News

    Fund Firm Jolts: Pimco's Isn't The First Or Worst

    When you business is built on prudence and trust, a lot can go wrong to cost you tons of clients and assets. Here are a few examples.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  8. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  9. Investing Basics

    What's a Treasury Note?

    A treasury note is a U.S. government debt security that offers a fixed interest rate and a maturity date that ranges between one and 10 years.
  10. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
RELATED FAQS
  1. Who generally structures a syndicated loan?

    Typically, either an investment bank or a commercial bank structures a syndicated loan. A syndicated loan is provided by ... Read Full Answer >>
  2. What are the typical repayment terms for a syndicated loan?

    The typical repayment terms for a syndicated loan are periods of three to six years for short-term loans or seven to 10 years ... Read Full Answer >>
  3. What is considered a reasonable interest rate for a syndicated loan?

    A 2010 survey of syndicated loans found an average interest rate of 7.9%. However, the majority of syndicated loans are floating ... Read Full Answer >>
  4. Under what circumstances might a syndicated loan be arranged?

    Syndicated loans are almost always arranged for huge, complicated projects that involve major corporations or governments. ... Read Full Answer >>
  5. What are the sources of funding available for companies?

    Despite all the differences among companies, there are only a few sources of funds available to all firms. 1. They make ... Read Full Answer >>
  6. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!