4.7 Particular Remarks on Syndicated Loans 127basis” (meaning that they agree to subscribe for the loan and will sell the loan to
other investors).
Arrangers have different functions. The book-runner will coordinates marketing
efforts and sell the loan. The documentation bank will coordinate documentation.
The agent bank, facility agent, and paying agent will take care of the flow of in-
formation and payments. In any case, their obligations are “pure agency” obliga-
tions meaning that they do no guarantee that payments will be made by other
banks.
Management group. If there is a management group, the management group
negotiates with the borrower and drafts the agreement on the syndicated loan.
Lead manager. The lead manager does the same things as the management
group. Typically, a bank drafts a preliminary contract document with the borrower
and the term sheet. The contract document is “subject to contract” (not yet bind-
ing) and resembles a letter of intent. The term sheet contains information about the
core commercial terms of the loan (the amount of the loan, the interest rate, matur-
ity, the currency of the loan, and so forth). If the borrower is happy with the terms
promised by the bank, the bank is given a mandate.
The bank will then draft loan documentation and an information memorandum
as lead manager and send the information memorandum to potential participants.
This will raise questions about the lead manager’s liability for the contents of the
information memorandum. As a rule, the lead manager owes a duty of care to po-
tential lenders but is responsible for its work process rather than the result. In
other words, it has a “duty to act with due diligence and with reasonable care”.
The information memorandum will contain limitations of liability to this effect.
The lead manager may in some cases promise that that the loan will be sub-
scribed for.
Facility agent. The bank appointed as the “facility agent” for the syndicate
banks will administer the loan, collect and distribute interest, collect information
from the borrower, distribute information to the syndicate banks, and take instruc-
tions from the syndicate banks on certain key aspects such as whether or not, fol-
lowing a default, the loan should be accelerated. The arranger often is appointed
as the “facility agent”.^222
Transaction costs. The arranger or lead manager will want all syndication costs
to be passed onto the borrower. The borrower may seek to impose limits on costs
during the negotiation stage.^223
The syndicated loan agreement. The syndicated loan agreement resembles a bi-
lateral loan agreement but contains additional terms which are necessary because
of the existence of many lenders and, in many syndicated loans, tranching.
Duties several. According to agreed terms, the responsibilities of the banks are
“several” rather than “joint”. A bank will thus not be responsible for the fulfilment
of another bank’s duties and banks divide risk on the basis of their share of the
loan.
(^222) Gayle C, op cit, p 300.
(^223) Ibid, p 302.