Press & Media

Understanding the Syndicated Loan

Introduction

A syndicated loan is a powerful vehicle for providing large amounts of capital to a borrower. The loan is structured to distribute the financial burden and subsequent risk among a collection of lenders. Once constructed there is an extremely active secondary market in these loans. Smaller lenders and buy-side firms thus have the ability to participate in lending at a level that would otherwise be impossible for them. At the same time, the original participants can hedge their investments and further distribute risk. The complexity of the origination, secondary market and maintenance of both cannot be understated. eClerx is here with over a decade of experience, tried and trusted experts and the technology to quickly build and enhance the syndicated loans function at your firm.

Understanding the Syndicated Loan

A syndicated loan is a financing option, also called a syndicated bank facility, where a group of lenders works together to provide a loan to a single borrower. The group of lenders taking responsibility to provide the funds is a syndicate. On the other side, the borrower can be an enterprise, a large-scale project, or even a government. The loan can consist of a fixed amount of money or a credit line, or it can be a combination of both. The lenders and borrowers are often labeled as hybrid entities considering that they combine the features of relationship lending and public trading debt.

When a project needs a lender specializing in a particular asset class, such as fixed income, syndicated loans are a good option. The need for syndicated loans also arises when a project is in dire need of a large loan beyond a single lender’s capabilities. A syndicated loan proves to be a viable solution as it spreads the involved large sum of money across numerous financial institutions. This also diminishes the risk to the lenders since they share the loss if the borrower defaults.

When originating a syndicated loan, a borrower approaches a Financial Investor or FI for a loan. Within the syndicated loan market, an FI is typically a bank. It is also known as the lead arranger, the lead lender, or the agent responsible for sourcing prospective lenders. Once a borrower approaches an FI, the FI runs a background check. They investigate to deduce the borrower’s financial health. This gives insight into the borrower’s creditworthiness and how much of a risk it could be to loan such an amount to the borrower. Considering that a syndicated loan amount is usually much higher than that of a standard bank loan, even one borrower defaulting can severely cripple the lenders.

Following the agreement of terms, known as a covenant, the syndicate members commit to their part of the overall risk per their tolerance levels – their contribution percentage. The lead arranger may take a bigger share of the risk or an administrative role. The administrative responsibilities include servicing throughout the lifetime of the agreement or undertaking duties such as dispersing payments among the syndicates.

This loan origination and syndicate building process is intricately complex and time-consuming. It is also only the very start of the work to be done for a loan. There is also monitoring, gathering and storing numerous loan documents. There is the tracking of changes in the financial conditions of the syndicate partners. These changes can affect their ability to be part of the syndicate and must be reflected in the risk system for the loan. Next is servicing the loan for its lifetime. Servicing is the workflow of loan notices. Notices of payments to be made, distributions, redemptions, etc. Also the archiving of these notices for regulatory purposes.

There is a strong secondary market in loans. Many companies would like the repayment revenue of loans but are not large enough or credit-worthy enough to be in the syndicate. Lenders in the syndicate can sell parts of their portion of the loan, thus allowing others to participate in loan repayments. Processing, tracking, and reconciliation of these secondary trades is another aspect of the syndicated loans lifecycle.

Finally, there is the task of cash reconciliation. Payment and repayment of loans occur constantly, and this cash movement must be audited and compared between systems.

Introducing eClerx – Loan Processing Experts

Due to the complexity and shear amount of work to be done during the life of a loan, an experienced partner is critical. As a long-trusted service provider in the syndicated loans industry, and one of India’s leading process management and data analytics companies, eClerx’ team is fully prepared to help your firm succeed in this arena. eClerx has relationships with 6 of the 10 largest banks in the world. We have over 9000 employees. We’ve been in the loans processing business for over 10 years.

eClerx Markets also stays well aware of the constantly evolving challenges facing the industry and is always working to address and overcome these issues. One example is the issue of time. Settlement can be slow, with par trades facing seven days, and distressed trades facing 20.

Regulators are constantly affecting business processes. Currently, the SEC is looking to improve liquidity risk management for open-end mutual funds and ETFs. Regulators want syndicated loans to meet redemption request timelines, citing the potential liquidity risk of long settlement times, as well as trades in the massive US leveraged loan market that take nearly twenty full days to close. These are both long term issues that need addressing.

Some issues have arisen due to the current global climate, namely, the pandemic. The effects of COVID-19 have led to a dramatic increase in demand for working capital loans, and consequently, secondary trading has increased. March and April of this year have seen massive volume increases, with a 100% growth in the secondary market from $60 billion a month to $123 billion a month.

Challenges and How eClerx Can Help

1. Loan Origination

Challenge

Manual digitization of credit agreements makes for slow processing times, errors and delays when it comes to sourcing documents from the agency.

Solution

Our solution is to make use of eClerx’ DocIntel, an OCR and Natural Language Processing(NLP) technology that allows for auto-capture, bypassing this need for manual data field input. Further, DocIntel makes use of trend analysis (machine learning) to review credit agreements and observe changes made by processors and adapt. This allows information capture to be based on their behavior, improving over time.

2. Trades

Challenge

Trade volumes are high, and there is volatility in volume. Manual trade reviews and prepping in Loan IQ are slow and cumbersome.

Solution

Our solution to this issue is a staggered shift to prep the trades before the start of the day. Automating trade review using RPA and to automate document sourcing for Clearpar improves secondary settlement further.

3. Reconciliation & Control

Challenge

The industry is currently using inefficient cash recon systems. There are hundreds of cash breaks received daily. Labeling each is an issue that requires slow manual matching. A volume spike during the quarter-end can compromise turn around times.

Solution

An intelligent automation (RPA) solution to match the credit and debit breaks without intervention is an excellent alternative. Only exceptions need to be processed manually. Combining tactical automation and dashboards with human intervention for maximum output.

4. Covenant Tracking

Challenge

Covenant tracking currently has no standard workflow and is a manual process. Covenant tracking also requires access to third-party sites such as Debtdomain or Intralinks. It can include chasing the borrowers themselves – which is time consuming.

Solution

Creating a standardized workflow to track the creation of scheduled documents and events speeds up the process and makes it more efficient. This also creates the ability for risk and portfolio managers to track borrowers and key events. eClerx has its proprietary tool, Intelligent Workflow Manager, to improve these processes quickly.

High Level Workflow

As we have heard, syndicated loans are a useful and popular financial mechanism to borrow or lend money. They, however, are complicated or originate and maintain. Maintenance comprises monitoring, cataloging documentation, tracking of risk, distributions, redemptions and careful accounting of notices of the same. Regulatory requirements are extensive and constantly changing. eClerx and its hundreds of experienced loans experts keep their fingers on the pulse of the industry. eClerx is a thought-leader in understanding the business and in developing technology to make all syndicated loans processing easier, less expensive and more efficient.

ABOUT US

For financial organizations across the world, eClerx Markets offers consulting, technological innovation, and process management expertise to uniquely solve operational challenges. With nearly two decades of industry experience complemented by the application of smart automation and robotics, our team of experts delivers holistic solutions across the trade life cycle, change management, data analytics, compliance, cash securities operations, document digitization and generation, and outreach.

Dentons and eClerx Announce Strategic Partnership

London, 03 June 2020 – Dentons, the world’s largest law firm, and eClerx Markets, a market leader in business process management for the financial markets, announce today the formation of a strategic partnership. This partnership combines Dentons’ legal expertise and global reach with eClerx’s proprietary technology and operational expertise, as well as its knowledge in AI-based document digitisation and machine-learning solutions.

The result will lead to a powerful, combined end-to-end solution that meets the complex needs of document digitisation, data extraction, customer outreach, document negotiation, and legal expertise in financial services.

As financial institutions continue to face an array of regulatory changes (including in relation to LIBOR discontinuance, Brexit, CSDR, and EMIR Initial Margin), the Dentons and eClerx partnership will allow clients to benefit from a full range of cost-effective legal and processing services and delivery models.

Luke Whitmore, a partner in Dentons’ UK Banking and Finance practice, said, “While law firms have historically staffed large document remediation projects exclusively with lawyers and paralegals, we recognise that it is more efficient and cost-effective to offer our clients a blended solution in which legal issues are handled by lawyers and process elements by specialist business process companies. Our partnership with eClerx will provide us with the ability to offer cutting-edge technology with a highly-skilled legal and processing overlay, and we believe that this combination will offer our clients greater efficiency at an attractive cost.”

Bhavin Patel, eClerx Markets’ Head of EMEA Sales said, “As markets continue to evolve and our clients seek innovative, end-to-end solutions, our partnership with Dentons creates a unique offering for regulatory remediation. By combining Dentons’ exceptional Banking and Finance legal practice with eClerx’s deep domain knowledge, processing expertise, and DocIntel platform, we have created a cost-effective and robust approach to resolve clients’ complex contract use cases and regulatory-driven remediation programs.”

For further information, please contact:

Rohit Grover
Head of PR and Communications, EMEA
D +44 20 7320 6513
Rohit.Grover@dentons.com

Erik Miller
Global Head of Marketing
D +1 646-368-6179
Erik.Miller@eclerx.com

About Dentons

Dentons is the world’s largest law firm, delivering quality and value to clients around the globe. Dentons is a leader on the Acritas Global Elite Brand Index, a BTI Client Service 30 Award winner and recognised by prominent business and legal publications for its innovations in client service, including founding Nextlaw Enterprise, Dentons’ wholly-owned subsidiary of innovation, advisory, and technology operating units. Dentons’ polycentric approach, commitment to inclusion and diversity, and world-class talent challenge the status quo to advance client interests in the communities in which we live and work. www.dentons.com

About eClerx

eClerx provides critical business operations services to over fifty global Fortune 500 clients, including some of the world’s leading companies across financial services, cable & telecom, retail, fashion, media & entertainment, manufacturing, travel & leisure, software, and high-tech. Incorporated in 2000, eClerx is one of India’s leading process management and data analytics companies and is today traded on both the Bombay and National Stock Exchanges of India. eClerx employs 9,000 people across its global sites in the US, UK, Italy, Germany, and Singapore, along with its delivery centers in India and Thailand.
For more information, please visit www.eClerx.com.

Overcoming Adverse Media Screening Challenges

Overcoming Adverse Media Screening Challenges

If you’re a financial institution subject to regulatory scrutiny Adverse Media Screening, also known as negative news screening, needs to be an integral part of your KYC (Know Your Customer) process.  In the US, KYC processes fall broadly within two areas; the first, part of the financial institution’s BSA (Bank Secrecy Act) and Patriot Act AML (Anti-Money Laundering) regime and the second as part of a Know Your Vendor/Supplier due diligence to comply with FCPA (Foreign Corrupt Practices Act) compliance.

Adverse Media Screening is searching for negative news about a person or entity (business, not-for-profit, etc.)  As an advisor who has assisted numerous financial institutions with their Onboarding and KYC processes, Adverse Media Screening challenges can be broadly classified as follows:

  • Identifying who should be screened and when
  • Identity Resolution: False positives abound when adjudicating adverse media alerts
  • Selection and deployment of technology and automation to parse through vast amounts of data
  • The review process itself
      • Training and deployment of negative news analysts
      • Final disposition around adjudication of negative news alerts and where they fit into the risk tolerance index of the FI or corporation

What we have also seen is that there is no industry standard around the Adverse Media Screening process. Each financial institution or corporation has its own strategy around this area.

Here at eClerx Markets, we can offer some best practice strategies and tips that you will want to incorporate into your processes. The first coincides with our three-part compliance ‘mantra’ here at eClerx.

  1. Tone at the top
  2. Reasonable and Robust
  3. Auditable and Traceable

Let’s take a look at these three concepts and apply them to Adverse Media Screening.

Tone at the Top

While this is a broad compliance concept, it is one of the areas that regulators focus.  Their concern; does compliance and its involved governance, processes and procedures have a seat at the executive management level?  In the case of Adverse Media Screening do we have the appropriate executive oversight?  Do we have relevant policies and governance?  Moreover, most importantly, do we have the budget and talent resources required to do this accurately and efficiently?

Reasonable and Robust

While financial institutions and businesses are neither the FBI or CIA, is the adverse media intelligence gathering and screening process effective?  Is it capturing the essential data?  Does the data analysis support the risk tolerance program of the institution?

For this, we have a tried and true suggested approach that we have used in both the AML and FCPA Compliance areas.  We believe that a reasonable and robust method to negative news screening includes the use of both a recognized compliance data vendor as well as an internal OSINT (Open Source Intelligence Search).  Most interestingly, it has been our work with monitors and law firms on FCPA-related projects that drove this finding home.  While there are many data vendors in the market, there are about four significant data compliance vendors that focus on AML and FCPA data.  In addition to adverse media news, these vendors also supply sanctions list screening as well as PEP’s (Politically Exposed Persons) lists.

Regarding OSINT searches, the go-to standard is Google.  However, there are a plethora of open source websites that should be employed as well as defined search strings.  For example, sites such as LinkedIn can be used to corroborate or rule out identities.  Free sites such as piple.com and knowyourcountry.com are just a few of the tools we use in adjudicating our client’s adverse media alerts.

Auditable and Traceable

Again, due to our involvement with multiple clients and participation in the ‘Big Three’ financial crime associations (ACFE, ACAMS, and ACFCS), providing us direct insights on what regulators focus on within their audits.  The overriding theme for the past several years is “we’re not looking for perfection.”  However, what they are looking for is as follows:

  • Clear and concise documentation on policies, procedure, and operations
  • Consistency in process
  • A robust Quality Assurance Program
  • Focus on risk profile as well as policies outlining when risk profiles need to be re-evaluated. Negative news is one of the triggers for that re-evaluation
  • Best efforts and training

We plan to follow up this article with a description of our new Adverse Media Screening Tool as well as our strategy for including proactive negative news screening. We welcome your comments and questions. You can reach me for questions and commentary at glenn.dinetz.c@eclerx.com