In the practicalities of arranging a syndicated loan a lead bank has Essay

In the practicalities of arranging a syndicated loan a lead bank has clear functions but its legal position and responsibilities are both potentially very ambiguous Discuss - Essay Example It follows from this that the legal responsibilities of the lead bank is very important as it represents an important link between the syndicate and their individual relationships with the borrower.2 Even so, the lead bank’s legal position is ambiguous since it coordinates what can amount to conflicting obligations between the syndicate and the borrower. This paper examines the legal position and the responsibilities of the lead bank in arranging a syndicated loan and explains how both can be ambiguous. A syndicated loan is a multi-bank financing mechanism where a number of banks conjoin to advance a loan to a borrower based on a â€Å"single loan agreement.3 The legal complexity of this arrangement is explained by Mugasha as follows: â€Å"...the agreement is executed by more than one bank and there is privity of contract between the borrower and each of the banks. Legally, each of the banks has a separate contract with the borrower, even though for convenience, the separate contracts are printed in one document.†4 In a typical case, a borrower requires a loan which a single bank is either unwilling or unable to advance. It could be that the loan required is large and the bank approached is not prepared to accept the risk for the entire amount.5 In any case, the reluctance of a single bank to advance a loan often gives way to a syndicated loan or a â€Å"multi-bank loan arrangement† in which at least two banks advance loans to a single borrower â€Å"on common terms based on a single document.†6 Despite the single document, each bank has a separate agreement with the borrower.7 The result is, the obligation of the individual banks involved in the syndicate loan is several rather than joint.8 The lead bank’s legal position and responsibilities with respect to the syndicated loan arrangements is divided into two intricately connected participatory roles. First and foremost, the lead bank, which is usually the bank