126 4 Debt
When the meltdown of financial markets in 2008 made it difficult to sell debt securities to
investors, the syndicate banks had to keep the loan in their own books.
Fixing of price. In the case of large government bond issues, the syndication pro-
cedure is typically very flexible and does not follow pre-defined rules. For smaller
issues, in particular for corporate bonds, syndication is often organised as a fixed-
price reoffering. An alternative to fixed-price reoffering is the pot deal.
The ECB describes a fixed-price reoffering as follows: “First, the syndicate banks collect
information on potential demand from investors. The syndicate and the issuer then fix a
price at which the banks buy the issue from the issuer and another, possibly slightly higher
price at which the syndicate members agree to sell the securities on to investors. After a
specified period of time, the syndicate dissolves and the banks are allowed to sell the re-
maining securities at a lower price.”^217 This is how the ECB describes the pot deal: “In a
pot deal, a range of possible issue prices are fixed and the final issue price is then set on the
basis of firm investor orders collected in one common book (“pot”) and negotiations be-
tween the syndicate and the issuer. In the case of pot deals, the price risk is usually borne
by the issuer.”^218
Different functions of syndicate banks. As there are many lenders, there must be a
division of responsibilities. As a syndicated loan is a multi-party contract, the
lenders will have plenty of mutual responsibilities. A participating bank can be the
lead manager, member of the management group, one of the arranging banks, the
book-runner, the documentation bank, the agent, an underwriter, and/or an inves-
tor on the secondary market.
Arranger. The majority of syndications involve one bank, the “arranger” nego-
tiating the broad terms of the loan with the borrower and organising a syndicate of
banks to participate directly in the facility agreement. The facility agreement will
include “syndication” clauses designed to assist the arranger in syndicating the
loan.^219
The arranger will, in practice, try to ensure that the terms and conditions of the
facility agreement are what it considers to be usual, as the arranger will fear that
differences from market practice may adversely affect its ability to syndicate the
loan.^220
In principle, the LMA standard loan agreement could provide a common tem-
plate as a basis for negotiations.^221
Arranging banks. There is a contract on marketing and/or underwriting between
the borrower and the arrangings banks. The arranging banks will work either “on a
best efforts basis” (meaning that they will try to get other banks to subscribe for
the loan but do not promise to subscribe for what is left) or “on an underwritten
(^217) Ibid, p 34.
(^218) Ibid, p 34.
(^219) Gayle C, Acquisition Finance – Syndication Best Practice, Int Comp Comm L R 13(8)
(2002) p 300.
(^220) Ibid, p 301.
(^221) Ibid, p 305.