Types of Loan Syndication
The following are the types of Loan Syndication.
Type #1 – UnderWritten Deal
Under this arrangement, the lead agent guarantees the entire loan. If the loan is not been fully required, then the lead agent has an option to absorb the undersubscribed portion. This loan syndication attracts the higher service fees and these kinds of loans have a high risk and it will make a huge profit for the bank.
Type #2 – Best- Effort Deal
Under this arrangement, the lead bank is not committed or guarantee the full amount of loan that is required by the borrower and undertakes to their best to find other lenders to provide commitments for the remainder. Any undersubscribed portion of the loan will be filled up by taking advantage of the changes in the market condition. If the loan is continuous undersubscribed, the borrower may be forced to accept a lower amount of loan or loan can be canceled.
Type #3 – Club Deal
In this type of syndication is of a smaller amount up to $ 150 million. In this, all the members of the club have an equal share. In this borrower may arrange the club itself or arranger may be involved.