What Is a Tender Panel?
A tender panel refers to a method of debt financing by way of a revolving underwriting facility (RUF). "Tender panel" is a term primarily utilized in Europe and not as common in the U.S. The U.S. equivalent would be a banking syndicate.
Tender panels are groups of commercial banks and investment banks that are commissioned by a borrower. They are formed to help finance projects by soliciting bids from various lenders on a best-efforts basis.
- A tender panel is a method of fundraising using short- and medium-term debt instruments.
- It involves a two-step fundraising process in which a syndicate of banks solicits interested parties to make bids on the corporate loans required by the borrower.
- Borrowers are free to opt for the cheapest financing offered by the tender panel; otherwise, they can proceed with the best available offer from the banking syndicate.
Understanding a Tender Panel
Tender panels are used to sell medium-term euro notes to large numbers of investors, thereby effectively spreading the risk of those notes across a large number of participating lenders. From the perspective of the borrower, tender panels can allow access to a much larger pool of potential lenders than would otherwise be possible. As such, they are often used by institutions, such as universities, who desire a single point of access to the capital markets.
From the perspective of the banks involved, the tender panel effectively represents a selling agent and a source of new business. Importantly, tender panels allow the banks involved to obtain the right, but not the obligation, to extend new corporate loans.
If a bank has plenty of capital and an appetite to lend, it can make a bid through the tender panel. If, however, the bank is experiencing lean times, it can remain on the tender panel while abstaining from particular rounds of fundraising.
Example of a Tender Panel
Tender panels are a popular method for raising short- and medium-term financing. To illustrate, consider a scenario in which a company wishes to arrange a short-term loan of 100,000 euros (EUR). The bank arranging the loan assembles a syndicate of other institutions that collectively agree to provide the loan amount. At this stage, a maximum interest rate is also agreed upon.
However, the exact interest rate paid by the borrower will depend on the second stage of fundraising. In that stage, the arranging bank assembles a tender panel of other institutions that agree to add some capital to the funds originally pledged by the members of the banking syndicate. The borrower is then free to accept loans from whichever institutions on the tender panel are willing to offer the lowest interest rates.
If, however, none of the tender panel banks can offer an interest rate that is acceptable to the borrower, then the company will rely on the initial banking syndicate instead. Therefore, from the perspective of the borrower, tender panels are a way to obtain competitive interest rates while still being assured of getting financing from the banking syndicate if they are not able to find more competitive rates elsewhere.