Syndicated lending is a form of lending in which a group of lenders collectively extend a loan to a single borrower. The group of lenders is called a syndicate. The loan is called a syndicated loan, in contrast to a bilateral loan, which is a loan made by a single lender to a single borrower. Syndicated loans are routinely made to corporations, sovereigns or other government bodies. They are also used in project finance and to fund leveraged buyouts.
Syndicated loans are primarily originated by banks, but a variety of institutional investors participate in syndications. These include mutual funds, collateralized loan obligations, insurance companies, finance companies, pension plans, and hedge funds.
Types of Syndicated Loans
Two types of loan facility are commonly syndicated: term loan facilities and revolving
Term Loan Facility
Under a term loan facility the lenders provide a specified capital
sum over a set period of time, known as the "term". Typically, the borrower is
allowed a short period after executing the loan (the "availability" or "commitment"
period), during which time it can draw loans up to a specified maximum facility limit.
Repayment may be in instalments (in which case the facility is commonly described as
"amortising") or there may be one payment at the end of the facility (in which case the
facility is commonly described as having "bullet" repayment terms). Once a term loan
has been repaid by the borrower, it cannot be re-drawn.
Revolving Loan Facility
A revolving loan facility provides a borrower with a
maximum aggregate amount of capital, available over a specified period of time.
However, unlike a term loan, the revolving loan facility allows the borrower to
drawdown, repay and re-draw loans advanced to it of the available capital during the
term of the facility. Each loan is borrowed for a set period of time, usually one, three
or six months, after which time it is technically repayable. Repayment of a revolving
loan is achieved either by scheduled reductions in the total amount of the facility over
time, or by all outstanding loans being repaid on the date of termination. A revolving
loan made to refinance another revolving loan which matures on the same date as the
drawing of the second revolving loan is known as a "rollover loan", if made in the
same currency and drawn by the same borrower as the first revolving loan. The
conditions to be satisfied for drawing a rollover loan are typically less onerous than for
A revolving loan facility is a particularly flexible financing tool as it may be drawn by
a borrower by way of straightforward loans, but it is also possible to incorporate
different types of financial accommodation within it - for example, it is possible to
incorporate a letter of credit facility, swingline facility or overdraft facility within the
terms of a revolving credit facility. This is often achieved by creating a sublimit within
the overall revolving facility, allowing a certain amount of the lenders' commitment to
be drawn in the form of these different facilities.