What is a syndicated leveraged loan?

A leveraged loan is a commercial loan provided by a group of lenders. It is first structured, arranged, and administered by one or several commercial or investment banks, known as arrangers. It is then sold (or syndicated) to other banks or institutional investors.

What is leveraged finance in banking?

Leveraged finance is the use of an above-normal amount of debt, as opposed to equity or cash, to finance the purchase of investment assets. Leveraged finance is done with the goal of increasing an investment’s potential returns, assuming the investment increases in value.

What are leveraged loan funds?

What are leveraged loans? Generally speaking, a “leveraged loan” is a type of loan made to borrowers who already have high levels of debt and/or a low credit rating. Lenders consider leveraged loans to have an above-average risk that the borrower will be unable to pay back the loan (also known as the risk of default).

What are the types of syndicated loans?

There are four main types of syndicated loan facilities: a revolving credit; a term loan; an L/C; and an acquisition or equipment line (a delayed-draw term loan). A revolving credit line allows borrowers to draw down, repay and reborrow as often as necessary.

What is meant by loan syndication?

Loan syndication occurs when two or more lenders come together to fund one loan for a single borrower. Syndicates are created when a loan is too large for one bank or falls outside the risk tolerance of a bank. The banks in a loan syndicate share the risk and are only exposed to their portion of the loan.

Are leveraged loans the same as bank loans?

Lenders consider leveraged loans to carry a higher risk of default, and as a result, are more costly to the borrowers. Leveraged loans have higher interest rates than typical loans, which reflect the increased risk involved in issuing the loans.

Is leveraged finance DCM?

What is Leveraged Finance? Leveraged finance (“LevFin”) is in its official capacity a debt capital markets (DCM) group. However, when investment bankers refer to DCM they are almost always referring to investment grade debt capital markets. Levfin is in practice treated as a separate product group.

How does a syndicated loan work?

Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various financial institutions without the disclosure and marketing burden that bond issuers face.

Why are leveraged loans attractive?

Leveraged loans offer potential inflation protection and a hedge against the rising interest rates that inevitably accompany inflation. Bond prices typically fall when interest rates rise.

How big is the leverage loan market?

Since 2010, the value of outstanding leveraged loans has risen from $500 billion to roughly $1.2 trillion in 2021, almost as large as the $1.5 trillion US high-yield bond market.