10 May 2024

What is a syndicated financing?

Large companies also need to secure financing when carrying out large-scale operations/transactions, and this financing is possible through syndicated financing.

The concept of syndicated financing is closely linked to operations/transactions involving large amounts of capital, such as the acquisition of a company, the opening of a new business unit, the refinancing of a large volume of bilateral debt, relevant investments or the start of a new project. In this case, financing is granted by a group of entities, under the same financial conditions, in order to share the risk among all of them; and it is executed in a single contract, which regulates both the obligations toward the funded party and between the financing entities. By executing in a single contract, all financial institutions enjoy the same guarantees in financing.

The main advantages of syndicated financing are: flexibility since it is more tailor-made; transactions for higher amounts; faster acquisition processes; administrative simplicity (centralizing agent bank) and lengthening of maturities.

There are several types of syndicated financing, how do they differ?

The extensive network of financial experts and investment banking specialists at BBVA CIB possess in-depth knowledge of the credit market and extensive experience to define the most appropriate type of financing for each transaction.

There are different types of syndicated financing according to the instrument used: 

  • Traditional syndicated loans, where several entities are involved, and with different formats depending on whether there is coordination or assurance by any entity.
  • Revolving credit facility (RCF). Common in companies with Investment Grade ratings, serve as liquidity and contingency facilities but are not drawn upon; generally intended for general corporate needs.
  • Bridge financing, which is mainly used to finance acquisitions, short to medium term, whose repayment comes from issuances in capital markets or asset disposal.

Finally, depending on the purpose or use of the financing we can distinguish between corporate financing, where corporate or business groups are financed for different purposes; Project Finance, aimed at financing large projects linked to the development of the basic infrastructure of a country, also contributing to its economic development; and Leveraged Buy-outs (LBO), through which a private equity fund acquires a company by leveraging the business it acquires. 

What roles are involved in syndicated financing?

Unlike other more conventional loans, in syndicated loans, since several financial institutions are involved, there are different roles depending on the role of each entity. There is the Bookrunner, which is the entity responsible for structuring, coordinating, designing, syndicating and executing the syndicated financing. This concept is not always present in this type of deals. In underwritten transactions, where one or more financial institutions assume all the financing amount and then distribute it among other entities, the underwriting entity is also Bookrunner.

There is also the Mandated Lead Arranger ("MLA"), which is the second most relevant role when there is a Bookrunner due to the amount it contributes to the financing deal. In the absence of a Bookrunner, the MLA is the most relevant role and is awarded to the banks with the largest commitments.

Additionally, there are other roles ("Lead Arranger", "Arranger", Participant) for entities that participate with an amount lower than the Bookrunner and/or MLA.

Finally, all syndicated financing includes an Agent bank with a more administrative role since it is responsible for (i) centralizing all collections and payments between the company and the financial institutions and (ii) conveying the company's communications to the other entities.