What is it?

A syndicated loan is a loan made by a group of lenders who share or participate in a specific loan given to a project.

Why it matters?

A syndicated loan is usually put together by a lead lender or arranger who pulls the other lenders together and handles the loan management and servicing.  The lead bank usually charges a fee for handling these activities.

How it works?

A project may require too large a loan for a single lender or require a special type of investor or lender with expertise in a particular asset class.   For example, a transportation project, such as a high speed rail, may involve a group of investors and lenders, each specializing in a portion of the project, such as rail lines, cars, bridges and tunnels, and signal and control technologies.  The whole group is referred to as a syndicate.

Not only do the various lenders or investors bring their own expertise to the project, but they also spread the risk among themselves without joint liability, especially among very large, complicated projects. In addition, they enable lenders to handle projects that may exceed their individual capital base.

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