CF - SGS 10
Terms
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- What is the order of creditors entitled to repayment on the winding-up of a company?
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1. Fixed charge holders
2. Preferential creditors
3. Payments of our ring fenced fund
4. floating charge holders
5. unsecured creditors
5. shareholders - What is the difference between a bilateral and a syndicated loan?
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A bilateral loan involves two parties, a borrower and a lender. A syndicated loan
involves several banks lending a proportion of the required funds by separateloans. - Why might a bank prefer/need to syndicate a loan?
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- Large sums
- spread the risk - What role to the banks that 'take the lead' on a syndicated loan play?
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They are the arrangers. They will have been appointed by a “mandate letterâ€
from the borrower after they have agreed a term sheet (often attached)
- Which party represents the syndicate during the life of the loan?
- Agent bank
- On whose instructions will the agent bank act?
- The agent can take such unilateral action as it considers to be in the best interests of the syndicate, but it will usually seek instructions from the Majority Lenders (usually holding at least 2/3rds by value of the total loan amount)
- How does the agent determine the LIBOR?
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The agent bank will determine the
applicable interest rate by establishing the relevant LIBOR for each interest
period and adding the margin. - How might a borrower ensure that it raises the full amount needed?
- By getting an underwriting commitment from the arranger(s).
- What happens if a loan is underwritten?
- the arranger(s) promise(s) that, if the syndicate is not fully subscribed, it will lend the underwritten sum of money to the borrower itself.
- What concern is an arranger likely to have in the context of its relationship with the syndicate banks?
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1. Potential liabilities for misinformation about the borrower;
2. try to limit its liability through disclaimers in the information memorandum (namely the “Important Noticeâ€) and exculpatory provisions in the loan agreement. - What concern is an agent likely to have in the context of its relationship with the syndicate banks?
- liability in the event any of its decisions have unfortunate consequences
- How will an agent protect itself if its decisions have unfortunate consequences?
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1. ensure duties are carefully defined in LA as of a purely administrative nature;
2. include exculpatory provisions in the loan agreement
3. act in accordance with Majority Lender directions. - For the purpose of loans initially only between a small number of banks, how do you describe what the banks will do if they want to de-risk?
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They will syndicate the loan by transferring “portions†of the loan
to other banks, thereby reducing their overall exposure to the borrower. - What are the two types of syndication?
- Primary and secondary syndication
- What is primary syndication?
- The initial syndication, whether it is pre or post signing of the loan agreement
- What is secondary syndication?
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Any subsequent transfers of
loan participations will occur on the secondary market and will be known as
“secondary syndicationâ€. -
How might an arranger ensure it has the flexibility to change the terms of a
loan in the event that the syndication process does not go as well as
anticipated? -
1. Market Flex clause
2. allows the arranger to change the pricing (i.e. the margin)
3. even the structure of the facility
Borrower likely to resist, will argue bank should anticipate. Might try to keep change to pricing and inc. a cap.