In a syndicated loan, multiple banks and non-bank financial institutions lend a proportion of the total amount of the borrower's loan by making separate commitments. An administrative agent is appointed by the syndicate members to interact with the borrower on behalf of the syndicate, to facilitate borrowings, receive repayments and distribute them in the correct amounts to the lenders, and to administer the loans. Syndicated loans are a common source of corporate finance for large and medium-sized companies because the syndication process allows the lenders to spread their risk, so that no individual lender is over-exposed to a particular borrower or transaction.

Once a company decides to borrow money, it approaches one bank to be the arranger to put together the syndicate of lenders to make the loan. The arranger performs a due diligence review of the business and financial condition of the borrower and its subsidiaries to determine the terms on which the lenders are prepared to lend money to the borrower. If, as is common, the arranger will also provide a portion of the lending commitment, it also obtains approval from its credit committee to make its share of the loan. The arranger instructs its counsel to draft a commitment letter, term sheet, and fee letter outlining the major terms on which the lenders agree to make the loans and the fees that the borrower will be charged.

After both parties sign the commitment letter, the arranger's counsel drafts the loan agreement and the related documents, such as security agreements and guarantees. The initial draft of the loan agreement should be consistent with the term sheet, but is then negotiated as the details are expanded on in the documents. For the arranger to be able to sell the loans to other lenders, the terms of the loan agreement should not vary too much from other bank loan deals that are then in the market for a similarly situated borrower.

While negotiating the loan documents, the arranger begins to acquire commitments from other lenders to make a portion of the loan. As the negotiations continue, the parties agree on a closing date and both parties' counsel are responsible for ensuring that all steps required to close the loan are completed in time.

This Toolkit contains continuously maintained resources to help borrowers, lenders, and their respective counsel when working on a syndicated loan transaction.