Since the 1998 Russian financial crisis roiled the market, however, arrangers have adopted market-flex contractual language, which allows them to change the pricing of the loan based on investor demand - in some cases within a predetermined range - and to shift amounts between various tranches of a loan. If the loans were undersubscribed, the arrangers could very well be left above their desired hold level. Once the pricing, or the initial spread over a base rate (usually LIBOR), was set, it was largely fixed, except in the most extreme cases. After this market read, the arrangers will launch the deal at a spread and fee that it thinks will clear the market. Before formally launching a loan to these retail accounts, arrangers will often get a market read by informally polling select investors to gauge their appetite for the credit. In the U.S., market flex language drives initial pricing levels. Consequently, pricing is not fully driven by capital market forces. In Europe, although institutional investors have increased their market presence over the past decade, banks remain a key part of the market. has a capital market where pricing is linked to credit quality and institutional investor appetite. The balance of power among these different investor groups is different in the U.S. The retail market for a syndicated loan consists of banks and in the case of leveraged transactions, finance companies and institutional investors. Europe, however, has far less corporate activity and its issuance is dominated by private equity sponsors, who, in turn, determine many of the standards and practices of loan syndication. In the U.S., corporate borrowers and private equity sponsors fairly even-handedly drive debt issuance. Though, this threshold moves up and down depending on market conditions. As a result, the most profitable loans are those to leveraged borrowers - issuers whose credit ratings are speculative grade and who are paying spreads (premiums or margins above the reference rate SOFR in the U.S., Euribor in Europe or another base rate) sufficient to attract the interest of non-bank term loan investors. The issuer pays the arranger a fee for this service, and this fee increases with the complexity and risk factors of the loan. market originated with the large leveraged buyout loans of the mid-1980s, : 23 and Europe's market blossomed with the launch of the euro in 1999.Īt the most basic level, arrangers serve the investment-banking role of raising investor funding for an issuer in need of capital. Financial law often regulates the industry. and Europe to receive loans from banks and other institutional financial capital providers. The syndicated loan market is the dominant way for large corporations in the U.S. A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as lead arrangers.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |