Does anyone have any insight into whether leveraged finance departments in banks provide the debt financing directly to clients or do they focus more on structuring the financing for clients so that other lenders can take on the debt?
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LevFin teams are oriented towards syndication. So think TLB/HY markets. When bank lend off their balance sheet to clients (think, RCF), that’s handled by their Corporate Bank group. Groups of course talk to each other, as most deals have a combination of syndicated facilities and revolvers.
This is correct. More rarely, some banks might house Levfin lending (CB) in the Levfin group.
Thank you for clarifying, much appreciated. So effectively, some banks will provide the financing as part of their Lev Fin offering, whilst all Lev Fin groups will provide some form of financing advice as their primary service?
Much appreciated, thank you for helping on this. Effectively the Lev Fin provider will assist a client, for example a PE house, in ensuring they receive a debt package to support an acquisition as an example at an acceptable return to investors and then syndicate this debt offering for other banks to partake in? Is this a fair assessment of a typical process involving a PE house within Lev Fin?
In some sense yes, but for the most part (bar what we term "best efforts" syndications), the banks typically underwrite the financing package - effectively taking on the financing risk - and syndicate it out to investors. Which is why Lev Fin is cap markets oriented - you will need a pulse on the market to understand pricing, market terms, etc.
This has been really helpful, thanks a lot.
Typical process is to provide commitment papers. So basically the bank agrees with the client terms (and flex terms) to provide acquisition financing. The client bids for an asset prove to the seller they are good for the money by showing the commitment papers from banks and their equity fund. The bank charges a commitment fee (say, 2.5% of the commitment amount). Once buyer/seller reach an agreement to buy the target, the bank goes and syndicates the debt before closing of the transaction. So the bank never has to fund. If for some reason the syndication doesn’t go that well the bank can flex the terms (e.g. increase the interest rate) to draw credit funds interest. If syndication still going bad and can’t fill the book, the bank has to fund the leftover (effectively becoming a lender) and/or sell that stake below the flex/capa (i.e. losing money).
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