Chapter 30. Syndicated Loans

STEVEN MILLER

Managing Director, Standard & Poor's LCD

Abstract: Leveraged loans are the primary financing vehicle for leveraged buyouts, recapitalizations and other transactions that rely heavily on debt. Loans are underwritten and arranged by one more investment banks and syndicated to a group of bank and non-bank lenders. Unlike bonds, however, loans are private agreements between an issuer and a lender group that are not registered with, nor regulated by, the Securities & Exchange Commission. Therefore loans are embodied in idiosyncratic documents that require the issuer to meet specific covenant tests and, typically, pledge collateral for the benefit of lenders in the event of default.

Keywords: loans, market-flex language, leveraged loans, LBO, second-lien loans, syndicated loans, high-yield, private equity, leveraged finance, nonperforming loans

A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial or investment banks known as arrangers.

Starting with the large leveraged buyout (LBO) loans of the mid-1980s, the syndicated loan market has become the dominant way for issuers to tap banks and other institutional capital providers for loans. The reason is simple: Syndicated loans are less expensive and more efficient to administer than traditional bilateral, or individual, credit lines.

This chapter is a primer on the leveraged loan market detailing how loans are underwritten, ...

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