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blai.gadanecz@bis The syndicated loan market: structure, development and implications1
The syndicated loan market allows a more efficient geographical and institutional sharing of risk. Large US and European banks originate loans for emerging market borrowers and allocate them to local banks. Euro area banks have expanded pan-European lending and have found funding outside the euro area.
JEL classification: G100, G200.
Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various financial institutions without the disclosure and marketing burden that bond issuers face. Syndicated credits are a very significant source of international financing, with signings of international syndicated loan facilities accounting for no less than a third of all international financing, including bond, commercial paper and equity issues (Graph 1).
This special feature prents a historical review of the development of this increasingly global market and describes its functioning, focusing on participants, pricing mechanisms, primary origination and condary trading. It also gauges its degree of geographical integration. We find that large US and European banks tend to originate loans for emerging market borrowers and allocate them to local banks. Euro area banks em to have expanded pan-European lending and have found funding outside the euro area.
Development of the market
The evolution of syndicated lending can be divided into three phas. Credit syndications first developed in the 1970s as a sovereign business. On the eve of the sovereign default by Mexico in 1982, most of developing countries’ debt consisted of syndicated loans. The payment difficulties experienced by many emerging market borrowers in the 1980s resulted in the restructuring of
1The views expresd in this article are tho of the author and do not necessarily reflect tho of the BIS. I would like to thank Claudio Borio, Már Gudmundsson, Eli Remolona and Kostas Tsatsaronis for their comments, Denis Pêtre for help with databa programming, and Angelika Donaubauer for excellent rearch assistance.
Mexican debt into Brady bonds in 1989. That conversion process catalyd a shift in patterns for emerging market borrowers towards bond financing, resulting in a contraction in syndicated lending business. Since the early 1990s, however, the market for syndicated credits has experienced a revival and has progressively become the biggest corporate finance market in the United States. It w
as also the largest source of underwriting revenue for lenders in the late 1990s (Madan et al (1999)).
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The first pha of expansion began in the 1970s. Between 1971 and 1982, medium-term syndicated loans were widely ud to channel foreign capital to the developing countries of Africa, Asia and especially Latin America. Syndication allowed smaller financial institutions to acquire emerging market exposure without having to establish a local prence. Syndicated lending to emerging market borrowers grew from small amounts in the early 1970s to $46 billion in 1982, steadily displacing bilateral lending.
Lending came to an abrupt halt in August 1982, after Mexico suspended interest payments on its sovereign debt, soon followed by other countries including Brazil, Argentina, Venezuela and the Philippines. Lending volumes reached their lowest point at $9 billion in 1985. In 1987, Citibank wrote down a
curities who interest payments and principal benefited from varying degrees of collateralisation on US Treasuries.
The Brady plan provided a new impetus to the syndicated loan market. By the beginning of the 1990s, banks, which had suffered vere loss in the debt crisis, started applying more sophisticated risk pricing to syndicated lending (relying in part on techniques initially developed in the corporate bond
market). They also started to make wider u of covenants, triggers which linked pricing explicitly to corporate events such as changes in ratings and debt rvicing. While banks became more sophisticated, more data became available on the performance of loans, contributing to the development of a condary market which gradually attracted non-bank financial firms, such as pension funds and insurance firms. Eventually, guarantees and unfunded2 risk transfer techniques such as synthetic curitisation enabled banks to buy protection against credit risk while keeping the loans on the balance sheet. The
borrowers from emerging markets, corporations in industrialid countries developed an appetite for syndicated loans. They saw them as a uful, flexible source of funds that could be arranged quickly
and relied upon to complement other sources of external financing such as equities or bonds.
1050日元As a result of the developments, syndicated lending has grown strongly from the beginning of the 1990s to date. Signings of new loans – including domestic facilities – totalled $1.6 trillion in 2003, more than three times the
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becau of the traditional importance of “main banks” for corporations.
2In an unfunded risk transfer, such as a credit default swap, the risk-taker does not provide upfront funding in the transaction but is faced with obligations depending on the evolution of the borrower’s creditworthiness.
Syndicated credits have thus become a very significant source of financing. The international market3accounts for about a third of all international financing, including bond, commercial paper and equity issues. The proportion of merger-, acquisition- and buyout-related loans reprented 13% of the total volume in 2003, against 7% in 1993. Following a spate of privatisations in emerging markets, banks, utilities, and transportation and mining companies4 have started to displace sovereigns as the major borrowers from the regions (Robinson (1996)).5
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A hybrid between relationship lending and disintermediated debt
In a syndicated loan, two or more banks agree jointly to make a loan to a borrower. Every syndicate member has a parate claim on the debtor, although there is a single loan agreement contract. The creditors can be divided into two groups. The first group consists of nior syndicate members and is led by one or veral lenders, typically acting as mandated arrangers, arrangers, lead managers or agents.6The nior banks are appointed by the borrower to bring together the syndicate of banks
谜底大全prepared to lend money at the terms specified by the loan. The syndicate is formed around the arrangers – often the borrower’s relationship banks – who retain a portion of the loan and look for junior participants. The junior banks, typically bearing manager or participant titles, form the cond group of creditors. Their number and identity may vary according to the size, complexity and pricing of the loan as well as the willingness of the borrower to increa the range of its banking relationships.
structure to grant a loan to Starwood Hotels & Resorts Worldwide, Inc in 2001.
Senior banks may have veral reasons for arranging a syndication. It can be a means of avoiding excessive single-name exposure, in compliance with regulatory limits on risk concentration, while maintaining a relationship with the borrower. Or it can be a means to earn fees, which helps diversify their income. In esnce, arranging a syndicated loan allows them to meet borrowers’ demand for loan commitments without having to bear the market and credit risk alone.
3An international syndicated loan is defined in the statistics compiled by the BIS as a facility for whic
h there is at least one lender prent in the syndicate who nationality is different from that of the borrower.
4Syndicated loans are widely ud to fund projects in the ctors, in industrial and emerging market countries alike. A feature article on page 91 of this BIS Quarterly Review explores the nature of credit risk in project finance.
破裂的天空5Interestingly, for most of the 1990s, emerging market borrowers were granted longer-maturity loans, five years on average, than industrialid country ones (three–four years).
6The bank roles, enumerated here in decreasing order of niority, involve an active role in determining the syndicate composition, negotiating the pricing and administering the facility.
For junior banks, participating in a syndicated loan may be advantageous
亡命千万里ctors, or indeed a desire to cut down on origination costs. While junior participating banks typically earn just a margin and no fees, they may also
坍方hope that in return for their involvement, the client will reward them later with
