Portfolio Management in International Syndicated Lending

This article is aimed at presenting a wholesome approach to the management of a syndicated loan portfolio.

Methods utilized include the following: (i) portfolio analysis —  calculating the parameters of a syndicated loan portfolio (main, liquidity, diversification, and commercial parameters); (ii) measuring completion of the Key Performance Indicators (KPIs) —  comparing the actual values of the parameters of the syndicated loan portfolio to the target values of the KPIs and making the required managerial decisions; (iii) portfolio management — using the various syndicated loan market techniques with which a portfolio can be managed to achieve the completion of the KPIs (actively, passively, and via restructurings). Active syndicated loan portfolio management includes the execution of transactions in both primary and secondary syndicated loan markets. Cases of passive syndicated loans management relate to repayments of the syndicated loans in the portfolio: voluntary full or partial repayments based on the decisions of the borrowers; mandatory repayments when the borrowers have to fully or partially repay the syndicated loans based on the decisions of the lenders; scheduled repayment in accordance with the repayment schedules of the syndicated loans. The portfolio can also be affected by restructurings, when the lenders agree to change a number of major terms and conditions of the syndicated loans due to the circumstances of the borrowers.

In order to assess the results of the syndicated loan portfolio management, a managerial dashboard is built, an important accounting tool allowing for decision-making based on the comparison of the actual values of the parameters of the syndicated loan portfolio to the target values of the KPIs. An important issue in syndicated loan portfolio management is the monitoring of compliance of the borrowers with financial covenants: (i) the ratio of the Net Debt to EBITDA (earnings before interest, taxes, depreciation and amortization); (ii) the ratio of Net Interest Payments to EBITDA. In cases when the financial covenants or other terms and conditions of syndicated loans are violated, the borrowers can request the lenders with either waiver requests (for “one-off” issues) or amendment requests (for permanent changes). The process of handling waiver and amendment requests, including the involved parties, documents and timelines is reviewed.

The main conclusion involves combining of syndicated loan portfolio management results, financial covenant monitoring, and working on waiver and amendment requests in order to create the executive report, as well as the formalization of the general scheme for managing a portfolio of syndicated loans.

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