Overview, Syndication and Term Sheet Flashcards
What is LIBOR?
The rate at which banks lend to each other on the interbank market
What is capital adequacy?
It requires banks to maintain a sufficient proportion of capital in relation to how much it lends. This is to protect depositors in case the borrower defaults on the loan.
Bank sets aside % for each loan it makes.
So, the riskier the loan, the higher CAR and the higher the interest rate.
What is matched funding?
When the bank borrows money on the interbank market to pay the sum requested by the Borrower
Who are depositors?
Normal people who deposit money into banks. When banks make loans, they partly use these deposits (as well as interbank loans).
How do banks make a profit?
Profit = Interest from Borrower - Cost of funding
Interest made up of margin (% in LA), LIBOR and mandatory costs (Borrower made to pay)
What is a committed facility?
Bank is legally bound to lend money and can only demand repayment before the agreed repayment dates if the Borrower breaches the LA
Why choose a syndicated loan?
Large loan - several lenders can combine, Borrower can borrow more
Lower risk for banks
Prestige - high profile syndicated loans can lead to good business for banks
Syndicated loan - Arranger?
Arranger = Bank
- Arranges the financing - organises a syndicate of banks
- Advises the Borrower on loan structure, costs, purpose, market conditions, etc.
Syndicated loan - Agent?
Agent = Bank - appointed by Lenders, an agent to the Lenders
- Appointed on advice of the Arranger (commonly same bank)
- Role starts when LA begins
- Acts as paying agent
- Monitors the borrowing
Syndicated loan - Security trustee?
If loan is secured, security trustee holds security for benefit of syndicate lenders
