Post on 20-May-2015
March 14, 2010 – Page 1
The Syndicated Loan Market definitions and sizing Russia and Europe’s experience Transforming the Syndicated Loan Market
BWBB 5043:
Credit and Syndicated Loan Management
PREPARED FOR:
CIK JULAILA JOHARI
PREPARED BY:
Hajaj S. M. Foujo 801468
Ahmed K. M. Madi 801131
Hocine Boughezala Hamad 802042
Bannapov Feruzbek 805873
May 2006 – Page 2
contents
Transforming the Syndicated Loan Market
Conclusion
22
33
44
Syndicated loan market in Europe &Russia
Overview of syndicated loan11
May 2006 – Page 3
- Definition and sizing- vision syndicated loan market- characteristics of old and new loan market
OverviewOverview of syndicated loan of syndicated loan
March 14, 2010 – Page 4
Syndicated Loans
A loan provided by a group of banks Single loan agreement, common terms and conditionsOne or more arranging banks (‘Mandated Lead Arranger’ or ‘MLA’)Various roles are divided between the MLAs:
• Book runner• Underwriting bank• Documentation bank• Information memorandum bank• Signing bank• Agent bank
Each participant bank may commit a different amount, reflected in the titleStructures cover a wide variety of options (e.g. plain vanilla, property finance,
acquisition finance)
Q. What is a syndicated loan?
Size
Significance nationally & internationally
Creditworthiness
Industry sector
Q. What factors determine which borrowers can
access the syndicated loan
market?
March 14, 2010 – Page 5
Syndicated Loans (cont’d)
Discuss funding requirements with potential arrangersDecide on best way to meet these requirementsAsk for bids or indicationsSelect the most suitable bid and appoint arrangerAssist arranger with syndication process
International and local banksInsurance companiesHedge funds, relatively new to the market, very aggressive
Q. What is the Structure of a
typical Syndicated Loan
Q. How does a Borrower access the Syndicated
Loan Market
Q. Who are the lenders in the
syndicated loan market
Each Loan is differentRevolver/ Term LoanExtended drawdownBullet/amortisingEarly repaymentMulti-currencySecured/unsecuredMulti-tranche
March 14, 2010 – Page 6
Sample syndication timetable
• Credit process
• Negotiate term sheet & mandate letter
• Mandate awarded
• Agree bank list
• Prepare information package
• Launch of syndication
• Commitments received
• Negotiate documentation
• Agree documentation with participants
• Signing
Pre-launch Syndication
1 week 2 weeks 1 week 1 week 2 weeks
March 14, 2010 – Page 7
Internal: clients• Relationship
Management• Structured
Finance• Acquisition
Finance
External: lawyers
Draft detailed facility documentation
External: investors
Potential participants in ING arranged deals
External: borrowers Face to face meetings with clients to support internal teams
Internal: agency
Interface between the borrower and the syndicate. For ING based in London and Amsterdam
Internal: risk management
• Locally: SCO• Centralised: credit
committees
SyndicatedFinance
Deal partners
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A typology of syndicated loan
March 14, 2010 – Page 12
Sample CLO transaction structure
March 14, 2010 – Page 13
May 2006 – Page 14March 14, 2010 – Page 14
May 2006 – Page 15
Syndicated loan market in Europe &Russia
Sources :Syndicated FinanceING Bank London
March 14, 2010 – Page 16
• The syndicated loan market in CEE, Russia and CIS is a private market. As a consequence, reliable information and statistics about individual transactions and the market overall is difficult to obtain.
• Various different publicly available sources of information, such as IFR, Euroweek, Loan Pricing Corporation/Reuters, Loanware and Standard & Poors provide information on the market and general trends, although each has a different methodology. As a result of the lack of a centrally co-ordinated and verified market database, the information provided by these sources may be inconsistent or indeed unreliable.
Emerging Europe
EU CEE
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Slovakia
Slovenia
Non-EU CEE
Albania
Bosnia and Herzegovina
Bulgaria
Croatia
Macedonia
Romania
Serbia and Montenegro
Russia and CIS
Russian Federation
Armenia
Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyzstan
Moldova
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Russia and CIS
Russian Federation
Poland
Slovakia
Hungary
Lithuania
Latvia
Estonia
Belarus
Ukraine
MoldovaKazakhstan
KyrgyzstanUzbekistan
TajikistanTurkmenistan
Georgia
Romania
Bulgaria
Azerbaijan
Croatia
Czech Republic
Bosnia-Herzegovina
Serbia and Montenegro
Albania
Russian Federation
Slovenia
Macedonia ArmeniaTurkey
Dissecting the market
Turkey
March 14, 2010 – Page 17
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
GN
I per
cap
ita (
US
$)
European Union
Slovenia
Czech Republic
Estonia
Hungary
Slovakia
Lithuania
Latvia
Poland
Croatia
Bulgaria
Romania
Macedonia
Bosnia & Herzegovina
Albania
Serbia & Montenegro
Russia
Kazakhstan
Belarus
Ukraine
Turkmenistan
Armenia
Azerbaijan
Georgia
Moldova
Uzbekistan
Kyrgystan
Tajikistan
Russia and CIS vs Europe Gross Domestic Product (GDP) per capita, PPP
Source: CIA World Fact Book
EU
EU CEE
Non EU CEE Russia and CIS
March 14, 2010 – Page 18
Syndicated loan market vs Eurobond market volume
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Loans Bonds Loans Bonds
Vol
ume
(US
$m)
EU CEE Non-EU CEE Russia & CIS
2004 2005
2004 - 2005
Source: Dealogic Loanware & Bondware
March 14, 2010 – Page 19
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD 2006
Vol
ume
(US
$m)
EU CEE Non-EU CEE Russia & CIS
Syndicated loan market volume1996 – YTD 2006
Source: Dealogic Loanware, ING analysis
March 14, 2010 – Page 20
Russia & CIS transactions
Volume and number of deals
113
73
2329
54
71
135
266
178
148
0
10,000
20,000
30,000
40,000
50,000
60,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD2006
Vo
lum
e (
US
$m
)
0
50
100
150
200
250
300
Nu
mb
er
of d
ea
ls
Russ ia Kazakhs tan Other CIS
1996 - YTD 2006
Record volume: 2005 saw the biggest volume to date for Russia and CIS (c.US$ 54bn). The volume in 2005 was over two times bigger than that of 2004 (c. US$21bn)
Loans continue to grow in size, with an average size of US$243 million in 2005, compared to US$148 million in 2004
Volumes very much impacted by large deals
Emergence of ‘jumbo’ deals
March 14, 2010 – Page 21
Russia & CIS transactions
Average maturity
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD2006
Ave
rag
e m
atu
rity
(yr
s)
Russ ia Kazakhs tan Other CIS
1996 - YTD 2006
Longer maturity of transactions
Larger number of deals with a maturity of more than 10 years, but still under ECA/EBRD or IFC conditions
Russia – tenor for non-structured loans is usually 1-3 years, with 5 years tested last year for Gazprom and Russian Railways, followed by Rosneft and MTS
State-owned banks are able to borrow for up to 3 years (Russia - VTB, VEB, Sberbank; Kazakhstan – KKB, BTA)
March 14, 2010 – Page 22
Russia & CIS transactions
Average margin
0
100
200
300
400
500
600
700
800
900
1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD2006
Ave
rag
e m
arg
in (
bp
s)
Russ ia Kazakhs tan Other CIS
1996 - YTD 2006
Borrower’s market
Pricing under increasing pressure
Margin for state-owned borrowers sets the direction for the market
Margin spread between private and public types of borrowers has grown since 2004
March 14, 2010 – Page 23
Syndicated loan market volume
Note: Multilaterals – financing where country risk is mitigated by involvement of multilateral agencies (EBRD, IFC, OPIC, ECAs, etc.)Source: Dealogic Loanware May 2006, ING Bank
35
89
49
918
41
54
86
46
106
164
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 May-06
Vol
ume
(US
$m)
0
25
50
75
100
125
150
175
200
225
Num
ber
of d
eals
Secured Unsecured FI Multilateral Number of deals
Russia 1996 - May 2006 Transactions becoming less structured
Oil and gas sector deals are still dominant
Shift to corporate deals from traditional trade finance deals
Increase in unsecured deals
Unsecured lending allowed borrowers form wider industries to access the syndicated loan market
Unlike 2004, in 2005 unsecured deals - RNG US$7.5bn, Gazprom US$972m, Sberbank US$1000m and Russian Railways US$600m - were among the biggest
In Russia within the US$44.6bn total volume, unsecured deals accounted for almost US$16bn, exceeding the total aggregate volume of the market in 2004
Domestic currency earners entered the market
March 14, 2010 – Page 24
Russia: Comparable transactions
Source: Dealogic Loanware
Feb-06 May 2006 Apr-06 Feb-05 May-2006
US$2,000m US$1,526m US$1,330m US$1,000m US$600m
General Corporate Working Capital General Corporate
5y 4y 3y/5y 9m 3y
65bps 55bps 37.5bps
Trade finance, Debt Repayment
Refinancing
55bps80bps / 100bps y1-
3,115bps y4-6
Oct-05 May-05 Sep-04 Nov-05
US$2,000m US$972m US$600m US$500m
Debt Repayment
5y 3y3m / 5y 3y 3y
180bps 125bps / 150bps
General corporate
70bps
Rosneft OAO Gazprom OAO MTS TNK-BP VTB
Gazprom OAO MTS TNK-BP
250bps
Rosneft OAO
Trade finance, Debt Repayment
Trade finance, Debt Repayment
Apr-05
US$450m
3y
Trade Finance
120bps
VTB
2004-2006
March 14, 2010 – Page 25
Has the price found its bottom?
MARKET DRIVERS
Few ‘Blue Chip’ borrowers
Insufficient deal flow
Competition from capital markets,
local banks
Increasing competition
between arrangers
Entry of new investors
into the market
Excess local liquidity
Refinancing before maturity
Big deals clubbed
• Prevailing in the last 18-24 months• Witnessed in all segments of CEE/CIS
market• Very few defaults• Returns are driven down by excess
liquidity• Underwriters are trying to offload risk as
soon as possible• ‘Conservative’ syndication strategies
applied for most deal – senior and general syndication stage
• ‘MLA’ titles given in syndication• ‘Relationship’ syndications• Sub-underwritings become rarer• Limitations of ‘market flex’ – the bond
market principle ‘can sell anything at a price’ does not apply
March 14, 2010 – Page 26
Why do we keep doing it?Difficult deals still get done
1. Returns still attractive
Internal return models adjusted
Countries’ risk upgraded
Still existing premium over Western Europe / other
emerging markets
2. Additional income
Currency conversion
Account opening / Deposit / Overnight placement
3. Follow up transactions
Refinancing
Positioning for more attractive business, e.g. larger
and more lucrative M&A
4. Access to Group companies
Subsidiary / affiliate finance
Similar companies in the sector
5. ‘Turf’ war
Client defining exercise
Defensive – protect existing client relationship
Aggressive – client winning exercise
Market share
League tables
Credentials
Future business in the country/region
Future business in the sector
6. Spin-off opportunities
‘Pay to play’
Investment banking/corporate finance/debt and equity capital
markets
Cash management
Payroll solutions
Staff benefits
March 14, 2010 – Page 27
Outlook for 2006
Russia• At current growth rate, the size of the market will double in two years• New borrowers will enter the market driven by attractiveness of the syndicated loan market• Investor inflow will continue – driven by still attractive yields and low recent default rates• Fragile market – ‘a single ‘failed’ deal can shake market confidence• Arranging banks will look for new borrowers; move to 2nd tier• Growth of event-driven deals, including sponsor-driven LBOs• Relationship-defining syndications and local currency syndications• Syndicated loan market – substitution for volatile DCM•Top names will follow the ‘longer tenor’ trendRest of CIS• Shift away from secured deals • Industry diversity • Returns for investors likely to be lower, but still remain attractive
March 14, 2010 – Page 28
A White Paper to the Industry – September 2008 by The Depository Trust &
Clearing Corporation (DTCC)
May 2006 – Page 29
Transforming the SyndicatedTransforming the Syndicated
Loan MarketLoan Market
Introduction
• The syndicated loan market has shown expansive growth in the past several years, reaching a global volume of more than $4.5 trillion in 2007, an increase of 13% over 2006 and 32% over 2005.
• The largest market was the United States, with $2.1 trillion in loan activity, an increase of more than 20% over 2006.
• The second largest market was the United Kingdom, with $376.3 billion in syndicated lending.
May 2006 – Page 30
Cont’d...
• Secondary trading in the market has also grown significantly in the U.S., with an estimated 92% increase in trading volumes in 2007 over 2006.
• The processing of syndicated loans is hampered by manual processes, outdated communications and an absence of industry-wide standards.
May 2006 – Page 31
The Depository Trust & Clearing Corporation (DTCC)
is working closely with an advisory committee of leading global banks, including The Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank and The Royal Bank of Scotland to introduce technology and solutions to address the processing and recordkeeping challenges that persist in this market.
May 2006 – Page 32
The Historical Demand for Syndicated Lending
The syndicated loan industry, comparatively minuscule before the early 1970s, grew explosively after the oil crisis of 1973. As petroleum prices soared, banks amassed deposits from oil-exporting countries and funneled them out in syndicated loans to oil-importing countries
By 2003, new deals had soared to $1.6 trillion globally, roughly 10 times the total a decade earlier.
The syndicated loan market grew spectacularly over the next few years, especially in 2006 and 2007, due in large part to the vast liquidity in the markets and a sharp increase in leveraged investing. In 2007 alone, worldwide syndicated loan volume totaled a record $4.5 trillion, up 13% over 2006.
May 2006 – Page 33
May 2006 – Page 34
Current and Long-Term Opportunities
The global credit tightening that began around mid- 2007 has affected the primary market in syndicated lending, as it has affected almost every sector of the loan marketplace. In the U.S., for instance, first-half volume in 2008 was down 51% when compared to the first half of 2007. Global syndicated lending for the first half of 2008 reached $1.3 trillion, representing a 47% decrease from the first half of
2007.
May 2006 – Page 35
Automation Initiatives for the Syndicated Loan Market
In the first quarter of 2008, DTCC announced it was developing a new and evolving suite of services called Loan/SERV that would help automate and streamline the
processing of syndicated commercial loans. DTCC will introduce two specific services in 2008, including:
• Loan/SERV Reconciliation Service.
• Loan/SERV Messaging Service.
May 2006 – Page 36
May 2006 – Page 37
May 2006 – Page 38
The Loan/SERV suite of services will introduce increased automation to the industry in several ways such as
Bring standardized loan. Reduce position breaks. Reduce cash breaks. Help reduce trade settlement delays caused by inaccurate recordkeeping.
Reduce fax-based communications.
May 2006 – Page 39
Position and Cash Breaks
Position breaks happen when records of loan commitment balances registered by the agent differ from those recorded by lenders. Such occurrences are not uncommon because lenders and agents keep completely separate records, and the problem has grown increasingly troublesome with the growth of the syndicated loan market.
Through such improvements, Loan/SERV will create more efficient and less risky loan syndication operational processes. This will reduce position and cash breaks, make the flow of information less error-prone and help move the industry towards its goal of closing secondary trades seven days after trade date in the U.S. and 10
days in Europe.
May 2006 – Page 40
Standardization of Transaction Language
Loan/SERV will help bring efficient syndicated loan communications, in part by embracing FpML (Financial products Markup Language), the industry- standardized ecommerce language. FpML is well-tested in over-the-counter derivative-trading markets, where it was constructed to combine speed, usability and security.
May 2006 – Page 41
DTCC will continue to follow the model of its successful Deriv/SERV product line and, like Deriv/ SERV, Loan/SERV will grow the market while helping to manage operational risk. Loan/SERV addresses the fundamental issues in both the U.S. and European syndicated loan markets by offering automation initiatives.
Help reduce position breaks by adopting automation to track, report and update position changes daily.
Help reduce related cash breaks. Replace outdated fax-based communications with a Web-based interface linked to a
central platform. Employ standardized loan servicing language with the adoption of FpML.
May 2006 – Page 42
Conclusion
March 14, 2010 – Page 43
Thank you for attention
Questions?