The Syndicated Loan Market

March 14, 2010 –

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 –

contents

Transforming the Syndicated Loan Market

Conclusion

22

33

44

Syndicated loan market in Europe &Russia

Overview of syndicated loan11

May 2006 –

- Definition and sizing- vision syndicated loan market- characteristics of old and new loan market

OverviewOverview of syndicated loan of syndicated loan

March 14, 2010 –

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 –

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 –

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 –

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

May 2006 – March 14, 2010 – Page 8

May 2006 – March 14, 2010 – Page 9

May 2006 –

March 14, 2010 – Page 10

May 2006 – March 14, 2010 – Page 11

A typology of syndicated loan

March 14, 2010 –

Sample CLO transaction structure

March 14, 2010 –

May 2006 – March 14, 2010 – Page 14

May 2006 –

Syndicated loan market in Europe &Russia

Sources :Syndicated FinanceING Bank London

March 14, 2010 –

• 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 –

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 –

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 –

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 –

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 –


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)


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 –


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)


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 –

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 –

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



Apr-05

US$450m

3y

Trade Finance

120bps

VTB

2004-2006

March 14, 2010 –

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 –

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 –

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 –

A White Paper to the Industry – September 2008 by The Depository Trust &

Clearing Corporation (DTCC)

May 2006 –

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 –

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 –

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 –

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 –

May 2006 –

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 –

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 –

May 2006 –

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 –

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 –

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 –

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 –

Conclusion

March 14, 2010 –

Thank you for attention

Questions?

The Syndicated Loan Market

Economy & Finance

Transcript of The Syndicated Loan Market