606 CHAPTER 16. INTERNATIONAL FIXED-INCOME MARKETS
1 , 000 , 000 ×(3. 5 − 0 .375)%/2 =nzd 15 .625. There will be two more of these reset
dates. At the end of the last period, the principal is also paid back.
You can view such a floating-rateCDas a series of short-term CDs that are
automatically rolled over without reinvestment of the interest earned each period.
Sometimes a floating-rateCDhas acapor afloor—that is, the interest rate that
the investor actually receives has an upper or lower bound. We shall discuss caps
and floors in the next section, which describes euroloans.
16.1.5 International Credits and Loans
International banks offer essentially the same products as domestic banks: loans
and credit lines. But there are a few interesting differences.
Consortia
One difference is that the loans tend to be extended by a group of banks (asyndicate
orconsortium) rather than by a single institution. The members of the consortium
or syndicate can play very different roles:
- Themandated arranger(or, more traditionally, thelead bankorlead manager)
negotiates with the borrower for tentative terms and conditions, obtains a
mandate from him to get the loan together, and looks for other banks that
are willing to provide the money or at least to act as a back-up for the money.
In the event that a group of banks unanimously agree to form a mandated
arranger group, the title is assigned to all banks within such group. Book
runner status is then assigned to the bank that runs the book (i.e., sollicits
and records the commitments by other banks to participate in the funding)
for a deal that is sent out into general syndication. The book runner often
leads the consortium even if arranging is, formally, shared. Bookrunnership
is now, in turn, getting shared among many banks; soon we will need a lead
bookrunner, and a few years from now a coordinator of the lead bookrunners. - The banks that provide the actual funding are calledparticipating banks.
- Because the funding is not yet arranged at the time of the negotiations, the
lead bank or the group of joint bookrunners often contacts a smaller number
ofmanaging banks to underwrite the loan, that is, guarantee to make up
for the shortage of funds if there is a shortage. These banks are also called
underwritersorco-managersorco-leadsorco-arrangers. - Thepaying agentorfacility agent, finally, is the bank that receives the service
payments from the borrower and distributes them to the participating banks.
Any given bank can play multiple roles. For instance, the lead bank is almost
invariably also the largest underwriter (hence, the name “lead manager”) and usually