What they are and how they work?
Loans in pools , organized on the domestic market by banks or specialized companies, are financing operations through which a pool of banks, or bank syndicates, provides the company with a fixed-term or open-ended line of credit, with the right to use even repeated over time.
The purpose of the consortium to be dissolved, once the financing operation is completed, is the repetition of the financial commitment between the lending banks by virtue of which the splitting of counterparty risk is realized. This is combined with the need for aggregation for financing of major projects, the possibility of involving smaller credit companies in wholesale financing transactions, marketing needs to maintain or remedy relationships with large customers.
Pool financing: origins
Typical of the Anglo-Saxon countries, pooled loans developed on the domestic market in the 1980s, a period characterized by the application of the ceiling on loans, to allow larger banks, in their capacity as lead partner, to offer their customers primary availability of funds obtained by virtue of participatory relationships with smaller banking companies.
The main position within the consortium is that of the lead institution ( lead manager ); it performs a very special function within the group, as the sole interlocutor of the applicant company; therefore, it proceeds with the disbursement of the funds, deals with the management of the credit, collects all the financial information required by the contractual agreements. The other banks participate in the agreement as a co-manager, in direct correlation with the financial commitments that they declare available to take on.
Legislative and contractual regulation of pooled loans
From a legal point of view, relationships are divided into two different stores ; in fact, a contract is aimed at regulating the relationships between the participants in the pool and the other the financing agreement between them and the beneficiary company. As for the former, it assumes the legal form of a joint venture contract, characterized by the presence of a commission of interests but by a total separation of responsibilities.
An essential aspect of this agreement is the choice of the lead bank , which is set up in a mandate contract with representation for the purpose of granting a credit, by virtue of which the mandatary bank, which operates in the name and on behalf of other companies belonging to the pool, grants the financing to the applicant company.
Pooled loans: operating practices and types
From an operational point of view , the entrusted activates the credit line opened at the cash desks of the lead bank through a letter of draw, which contains the technical procedures for using it. At the same time, the other lender banks shall issue a pro-rata , each with the lead partner, with an account held by the borrowing company, which will be charged by interest and loan repayments.
Loans in pools can take different technical forms, many of which were developed in the 1980s, based on the experiences gained in transactional countries. The main types of transactions in the pool include stand-by, evergreen and bid-line credit lines.
Loans in Stand-by Pool: mode of operation
Stand-by is a short-term financing operation, although it may be contracted for longer maturities, with which the pool of banks makes available to the applicant company a credit line of predetermined amount and for a period of time determined.
The request for use of the credit line granted, forwarded to the leader by means of a letter of draw, must contain information about the amount and duration (usually three months), while the rate of interest is established contractually based on performance parameters prefixed (eg Euribor, yield Bot) corrected for a variable spread depending on both the amount of the loan and the credit standing of the entrusted company. The amount of the draft and the period of use are thus determined by the latter according to the management needs.
It seems clear that the families in question allow the company to be able to count on an availability able to cover the most variable and uncertain needs as regards the period of occurrence or alternating and inconstant over time. Nonetheless, the withdrawal of the single loan tranche is extremely rigid in the sense that early repayments are not allowed with respect to the deadline indicated in the letter of draw.
In fact, at that deadline, the debtor has the right to renew the use for amounts equal or different to the previous one or to repay the loan, in both cases the expenses and interest accrued on the use must be paid to the leader. In the case of non-payment or partial variation between 0.15% and 0.50% of the unused amount, whose application is reasonably founded in the bank’s commitment to make the funds available according to the contractual terms and to hold a certain amount amount of assets against the total weighted assets for the risk of presumed loss, in accordance with the provisions of the Supervisory Body.