While technology has transformed many areas of finance, one corner that has remained relatively untouched, at least until recently, is the opaque world of syndicated loans. That’s because most of these deals involve hundreds of pages of tailored deals that can be difficult to automate. But as the value of the global lending market doubled to more than $20 trillion in the past three years and compliance rules tightened, the push for digitization has grown and opportunities for new “fintech” platforms have opened up.
How Fintech sets its sights on syndicated loans
1. What are these new loan platforms?
Back in the 1980s and 1990s, banks used a series of manual processes to share information with other lenders when they formed a group to provide financing to companies for investment, expansion or acquisitions. The syndication desk mainly used platforms such as Debtdomain in Europe and Asia, and Intralinks and SyndTrak in the US, to post information on primary market deals, conduct bookrunning and issue invitation letters. Lenders would then print materials to review. When the agreements were concluded, data from the agreements were entered into service systems and disseminated via fax or later e-mail. These existing platforms and a number of new competitors now offer more than just a portal to post information. Bankers can use them to automate loan documentation and complete the entire syndication process.
Historically, banks that promote their own loans or act as intermediaries between borrowers and lenders would share deal information using systems such as Debtdomain, Intralinks and SyndTrak. Their use gradually spread to traders and brokers in the secondary market – the buying and selling of loans between third parties. Today, these and newer rival electronic platforms can be used for all of the above, as well as for portfolio management and loan settlement. A couple of platforms also allow loan buyers to get in touch with borrowers if they need more information. Sometimes lawyers can use them to post documentation.
3. Why all the new platforms?
The market’s rapid growth made it impractical for bankers to call long lists of potential lenders for a single transaction. Automation means they can instead use the time to generate more deals. Platforms today are more secure and more closely audited, helping banks meet their compliance needs. They also offer faster processing times for secondary loan sales, so less of a bank’s available capital is tied up while a sale is completed.
4. What else do they offer?
• Sharing the same electronic marketplace means bankers gain more visibility into cross-market activity. Most platforms aim to offer a full service to markets they focus on.
• All major platforms provide communication between promoters, sellers or agents and potential lenders and buyers, and sometimes borrowers and lawyers.
• Most offer a computer room with documentation and agreements, to which selected lenders gain access by signing non-disclosure agreements.
• Certain platforms, using algorithms based on previous transactions, suggest lenders who may be interested in specific deals. And some allow confidential marketplaces to showcase what a seller wants to show and choose which potential buyers to target.
• Several also offer market analysis, for example lender’s share or price analysis to help with marketing agreements, and centralized data sharing of loan details including the banks’ outstanding positions.
5. Where is the market heading?
Bankers complain that technology adoption for loans has been slow compared to other markets such as bonds or stocks because there is no standardization and markets in Asia, Europe, the Middle East and Africa are fragmented. Several platforms may come to target niche segments of the lending market, and some of these may end up being merged into larger entities to bring scale to their business. One example is VC Trade, a Germany-based provider with roots in the local bond market, which recently announced the purchase of ING Bank’s Loan Optics service.
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