Available specifically to large businesses to finance large-scale projects, a syndicated loan applies in particular in the following situations:

• acquisition or merger of companies;
• takeover of companies by management (management buyout - MBO) or by private equity firms (leveraged buyout - LBO);
• financing of projects;
• acquisition of large plots of land and/or large buildings;
• development and modernisation of the business and making the business profitable;

Documentation or description of the business

• copy of the company’s articles of association;
• group structure if the company is part of a more complex group;
• last 3 audited balance sheets of the borrower and, if applicable, the latest available trial balance;
• order book (where applicable);
• list of customers and their relative contribution to turnover;
• list of suppliers.
• forecast balance sheet and business plan for future years.

Presentation of the project

• detailed description (including figures) of the planned investment and, where applicable, a market study;
• financing plan;
• calculation of feasibility and return and calculation of the breakeven point;
• appendices:
  • land: preliminary sale agreement, cadastral map, building permit;
  • building: preliminary sale agreement, construction plan, building permit, specifications, quotes, photos (if any), lease, etc.;
  • machinery: list of investments, replacement of existing equipment, additional equipment, purchase orders or invoices;
  • company: preliminary sale agreement, due diligence, audited accounts, etc.;

Guarantees

The guarantees required by all banks before granting a loan are the solvency of the borrower and the profitability of the project to be financed. In addition, the bank will inform the beneficiary of the syndicated loan of the tangible, personal or moral guarantees deemed necessary to guarantee the loan granted.

Because of the large variety of purposes for which syndicated loans are granted, the guarantees requested are also very diverse. The most commonly-requested guarantees are:

• the mortgage registration;
• mortgage mandate;
• pledge on business assets;
• surety of the parent company;
• negative pledge clause (undertaking not to pledge assets);
• various moral guarantees such as the subordination of claims, maintaining partners or the shareholding structure;
• a multitude of loan covenants to be complied with on pain of cancellation of the loan granted.

When the partners/shareholders of a business have to stand surety for the company, the bank should be provided with the details of their financial situation.

Duration and amount

Duration

• medium to long-term;
• between 3 and 20 years (depending on the amortisation period of the asset or project to be financed).

Amount

As a general rule, financing of 70 % to 80 % of the value to be financed.

Interest rate

• interest rate depending on the quality of the client, the project and the guarantees offered;
• fixed or variable rate;
• monthly, quarterly, semi-annual or annual repayment.

Refunds

Repayment depends on different criteria, including, for example, the amount, the rate, the amortisation period of the asset to be financed, etc.

In view of the size of the amounts involved, syndicated loans can be taken out in several forms:

• bullet loan;
• investment loan;
• cash credit, etc.

Set-up times

The reviewing and processing times depend on the complexity, size and urgency of the case.

Advantages, disadvantages and risks

Advantages

• allows a significant volume of financing to be raised;
• lower administrative costs than a debenture loan or an initial public offering (IPO);
• generally less costly in terms of interest rate than other forms of financing of a similar size;
• uniformity of the agreement, the language and the governing law, no loss of time compared to concluding several loan agreements;
• debit interest is tax deductible, allowing the taxable amount to be reduced and therefore less tax to be paid.

Disadvantages

• guarantees will probably need to be provided to the bank;
• several loan covenants to be complied with;
• in the event of a problem, it can be difficult for the borrowing company to have to meet all the banks at the same time.

Risks

• the smallest banks could want to withdraw should a problem arise in terms of profitability. Clauses concerning the transferability of risk must therefore be analysed in detail;
• the borrowing company could be in a position of weakness compared to the loan syndicate; it is therefore crucial to choose the arranging banks carefully since most of the decisions are taken on a majority vote.