What is a Syndicated Loan?

What is a Syndicated Loan?

A syndicated loan is a loan offered by a group of lenders, otherwise known as a syndicate. Instead of one financing source to borrow from, a company borrows from a group of affiliates (often times other banks or finance companies). The borrower could be any form of entity, ranging from corporations to a governmental agency. A syndicated loan can involve a fixed amount of funds, a credit line, or a combination of the two. Syndicated loans arise when one lender doesn’t have the capacity to finance a large project or to share the credit risk. Syndicated loans may require special assistance that only lenders who specialize in that area can handle.

Although the loan is essentially split, the interest rates can be either fixed or floating. Typically, there is a lead bank or underwriter that can put up a bigger share of the loan. The lead bank or underwriter can also disperse cash flows among the other lenders who play a part in the loan. Most syndicated loans are too large for one lender to finance. The main purpose of a syndicated loan is to alleviate the financial pressure of the companies who are willing to finance the company seeking the loan.

There are three types of syndicated loans:

• Underwritten Deal – The lead agent or underwriter syndicates the entire loan. If the full deal is not subscribed, the underwriter can absorb the part of the loan that isn’t subscribed.
• Club Deal – This type of syndication deal typically entails a smaller amount. The lead agent and other syndication members share equal, or nearly equal, parts of the fees earned from the loan.
• Best-Efforts Syndication Deal – The lead agent does not commit or guarantee the entire loan amount. Any undersubscribed portion of the loan will be filled up by taking advantage of the changes in market conditions. If the loan continues to be undersubscribed, the borrower may be forced to accept a lower loan amount or the loan will be canceled entirely.

As a non-bank participant, Hitachi Business Finance (HBF) participates in loan syndication transactions that range from $5 – $25 million. Hitachi Business Finance is a non-traditional, non-competitive resource. HBF has a large capital base with competitive cost of funds. HBF has the ability to approve and fund quickly as a non-regulated lender. Our transactions are collateral focused; we are willing to fund your accounts receivable, inventory, and equipment. Hitachi Capital America Corp. in U.S. has assets of nearly $3 billion. Hitachi Capital Corp. in Tokyo has assets of $21 billion.

Interested in Syndication Lending?

Interested in signing on to a syndicated loan deal with Hitachi Business Finance? Contact our Origination Leader, Thomas Bayer, at (203) 956-3249 or reach him at tbayer@hitachibusinessfinance.com.