DEFINITION of 'Tender Panel'

A tender panel is a method of financing pursuant to the sale of euro notes through a revolving underwriting facility. Tender panels consist of a select group of 15 to 20 commercial and investment banks and receive permission from a borrower to solicit bids on a best-efforts basis to finance a project. The tender panel also functions as a selling agent for the banks that arrange the credit facility.

BREAKING DOWN 'Tender Panel'

Tender panels are used to place medium-term euro notes with large numbers of investors. They also separate the bank originating the issue from the purchasing banks. This effectively reallocates the credit risk among a large number of participants. Tender panels are also used in universities to supervise the receipt and issue of tenders to and from suppliers.

How Tender Panels Work

Tender panels were frequently used to implement multiple option facilities (MOFs), which saw their heyday of popularity in the 1980s as a means of facilitating short- and medium-term loans. For example, let’s say a company wants to arrange a short-term loan of €100,000 ($123,370). The bank arranging this loan assembles a syndicate of other institutions that agree to jointly provide the loan amount. At this point, a maximum interest rate is agreed upon.

However, this interest rate may not be what the borrower ends up paying. In a second stage of securing funding, the arranging bank assembles a tender panel of other institutions that agree to add some funds to the money originally pledged by the members of the syndicate. Tender panel banks are invited to make bids to provide financing. The company will take loans from those banks on the tender panel that are offering it the cheapest interest rates. However, if none of the tender panel banks can offer an interest rate sufficient to the company’s needs, or lower than that offered by the arranging bank’s syndicate, than the company will go to that syndicate to get its loan instead. Therefore, the tender panel serves as a means for companies to obtain competitive interest rates while still being assured of getting financing when they need it.

For the bidding institutions, the benefit of the tender panel is that it allows banks the opportunity to offer corporate loans but without any commitment. If a bank has plenty of capital, it can make a bid, but if it is experiencing lean times, it can still be on the tender panel but has no obligation to make a bid, and can instead wait for times to get better.

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