A syndicated loan is a credit facility in which multiple lenders collectively provide credit to a single borrower under a shared set of terms governed by a single credit agreement. Syndication allows borrowers to access loan amounts larger than any single bank's appetite or regulatory limits, while allowing lenders to participate in credits they could not hold in full and to diversify their portfolios.
The syndication process begins with a lead arranger — typically a major bank with strong distribution relationships — who wins a mandate from the borrower and takes on the underwriting risk of the facility. The arranger structures the deal, negotiates initial terms, prepares an information memorandum, and distributes the deal to a syndicate of banks and institutional investors. The arranger may underwrite the deal on a fully committed basis (guaranteeing the borrower a successful syndication) or on a best-efforts basis (retaining less risk).
Syndicated loans are divided into two primary tranches for distribution purposes. Pro rata tranches — typically revolvers and amortizing term loans — are sold to banks that also provide ancillary services (treasury management, foreign exchange, letters of credit). Institutional tranches — primarily Term Loan B structures with minimal amortization — are sold to institutional investors including CLOs, mutual funds, and hedge funds.
The administrative agent is the lender that manages the administrative functions of the syndicated credit: processing borrowings and repayments, distributing interest payments, maintaining lender records, and serving as the point of contact between the borrower and the syndicate. The collateral agent holds security interests in collateral on behalf of the lender group.
The secondary market for syndicated loans allows lenders to buy and sell loan positions after the initial syndication. Trades settle through LSTA par/near-par assignment procedures for performing loans, or distressed trading protocols for credits below approximately 80 cents on the dollar. Loan settlement cycles have historically been longer than bond markets — T+7 or longer for par trades — though efforts to streamline settlement are ongoing.