What is Debt Syndication? (with pictures)

Tricia Christensen
Tricia Christensen
Banks are frequent users of debt syndication as it reduces the risk to themselves.
Banks are frequent users of debt syndication as it reduces the risk to themselves.

Debt syndication is the process of distributing the money advanced in, generally a large loan, to a number of companies or investors. It's commonly used when the loan required, in order to fund a company or save a company from bankruptcy, is several million US dollars (USD).

By employing debt syndication, several banks, investment firms or other companies share both the profits and the risk of making a large loan. A decline in the number of available lenders has complicated the syndication process. While banks are often the primary lenders, they can be involved in deals with less outlay, thus reducing their risk.

The original check from a debt syndication will often come from a bank, which then goes out to find other backers to reduce its risk.
The original check from a debt syndication will often come from a bank, which then goes out to find other backers to reduce its risk.

Banks are likely to syndicate debt, because they are more careful about taking on more risky investments. In fact banks may advance little money but act more as the principals in arranging a deal between several investors. Banks frequently do not underwrite the entire loan, since this would mean they would be advancing all initial risk for a large deal.

Some underwriting of debt syndication is still done by banks, which means that initially, they write the check. The bank then takes the loan to additional investors in an effort to sell part of the loan and thus reduce its outlay of funds.

Sometimes underwritten syndication is only final, if the underwriter is able to secure additional financing for the loan required. Thus, choosing an underwriter with a record of being able to put together details and attract other financing companies is helpful in achieving the necessary funds.

When debt is syndicated, other firms that may help share the cost of an investment might be investment firms. However, securities firms, insurance companies, credit unions, or single investors might all share a portion of the risk and advance money for a loan.

Some of the largest banks that offer debt syndication in the US are Wells Fargo, Bank of America and J.P. Morgan. Choosing a bank with exceptional experience in this process may be of assistance in obtaining a large loan.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent SmartCapitalMind contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent SmartCapitalMind contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

You might also Like

Readers Also Love

Discussion Comments

MissMuffet

@accordion - I agree, with you, and would like to see more options for personal debt financing available along these lines. It would certainly help more people buy property, especially when the economy goes into debt crisis mode.

accordion

I imagine business debt is much more complex than personal debt, though in a way this sounds similar to the sort of loan consolidation that many college graduates have to look into for college loans these days.

Post your comments
Login:
Forgot password?
Register:
    • Banks are frequent users of debt syndication as it reduces the risk to themselves.
      Banks are frequent users of debt syndication as it reduces the risk to themselves.
    • The original check from a debt syndication will often come from a bank, which then goes out to find other backers to reduce its risk.
      The original check from a debt syndication will often come from a bank, which then goes out to find other backers to reduce its risk.