Wednesday, March 2, 2005

Definition of Syndicated Debt

Definition of Syndicated Debt

Syndicated debt is a business term used primarily in financial transactions where large sums of money are involved. Typically corporations, or sometimes governments, become involved in syndicated debt. The lenders themselves must also be large and are usually banks or similar institutions.

Definition

    Syndicated debt is a debt process in which there are many lenders instead of one lender. Only one debt contract is negotiated, and usually only one loan is made, but that loan is so large that one lender cannot handle it. Syndicated debts are usually so large that it takes multiple lenders who come together over the contract and agree to its terms to finance the loan.

Rates

    Syndicated loan interest rates tend to be variable, but only in a limited fashion. They are often dependent on variable conditions such as the United States bank rate. Like other loans, syndicated loans can be flexible regarding the terms of interest rates, but a variable rate is a common requirement to draw enough lenders to make the loan possible.

Other Details

    In other ways, syndicated loans resemble normal loans. The interest payments are spread out over time, and a term is designated at the end of which the loan must be fully paid off. The loans are often direct, but may also be revolving lines of credit that allow buyers to continually borrow certain sums of money.

Best Effort

    Syndicated loans are often made with a best effort caveat. This means that the lenders may not be able to come up with all the funding necessary to make the loan. In this case, the loan will be for less than the borrower requested. Sometimes the borrower can back out of the loan if the best effort is insufficient, and sometimes the contract is binding.

Uses

    Syndicated loans are common in business practices such as leveraged buyouts where large sums of money are used to take over corporations by buying enough stock to have control of the company. Syndicated loans are also by mutual fund managers and other investors with a lot of capital to invest in business debt.

0 comments:

Post a Comment