Debt Syndication

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.

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.