Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow Property finance
< Prev   CONTENTS   Next >

1.5.3 Syndication of Real Estate Loans

If the lending bank is not able or willing to underwrite the loan in full, or if it is required to reduce its credit exposure towards certain clients or sectors, it will be necessary to involve other banks: this operation is generally referred to as “Syndication”.

Syndication may occur upon conclusion of the loan agreement, or after it is concluded. In the former case, the operation will be concluded in a pool with other banks (also referred to as a club deal). In such cases no particular problems arise either with regard to the conclusion of the agreement or to the guarantees of equal ranking which will be provided to all of the banks. In such cases it is settled practice to conclude an interbank agreement to regulate relations between the banks, also specifying which of them is to act as the agent bank with the task of coordinating the interaction – which does not always run seamlessly – between the various banks during negotiations with the borrower and of administering and monitoring the loan during the post-disbursement stage (the agent bank is normally the one which establishes relations with the client).

In other cases, especially when it is not possible to wait for a long time in order to conclude the club deal, the bank will finance the transaction with a bridge loan, e.g. a short to medium-term loan. Before the bridge loan matures the bank and/or the borrower will contact the other banks in order to make provision for the mortgage on a pooling basis with a medium to long-term loan which will redeem the existing loan.

The problems associated with this structure are well known because the bank granting the bridge loan may not make a firm commitment also to sign the long-term loan in full, with the result that if it is not able to arrange the club deal before the bridge loan matures, there may be a default risk on the transaction.

In cases of construction financing (to be disbursed on the basis of a work in progress[1]) the agent/arranger bank may underwrite the full amount of the loan and sign the relative agreement (also accepting all guarantees) and may start making the initial disbursements. It will then start (or continue) to look for other banks which, once the transaction has been accepted, will sign a new financing agreement solely in respect of the part underwritten, requesting the borrower to issue the relative guarantees to them with the same ranking as those granted to the agent bank (and with the agreement of the latter). At the same time the agent/arranger bank will reduce its contractual commitment by an amount equivalent to that underwritten by the underwriting banks.

  • [1] WIP: in a broad sense both construction and commercialization work in progress.
 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Philosophy
Political science
Psychology
Religion
Sociology
Travel