Moving from syndicated loans to club deals – Garrigues

A consequence of the current financial pressures on banks is not only a reduced willingness to finance projects individually but also a collapse in syndicated loan deals, says José Guardo, head of the project finance practice at Garrigues.

‘The banks are being much more analytical about which projects they are willing to finance and much more strategic about what types of deals and who they work with.’

The leading domestic national banks remain active in the Spanish market but alongside fewer international players, he says, with the most prominent now including Barclays, BNP Paribas, HSBC and Société Générale, which have well experienced local teams.

‘A problem is that the size of the lending market has reduced but the number of projects remains the same if not higher than was previously the case. Banks know that they cannot cover all the deals they are presented with so are being much more selective.’

Among the criteria that banks use in decision-making inevitably includes the strength of the existing client relationship but also the deal terms that can be negotiated.

‘Banks no longer have the appetite to underwrite projects individually and then syndicate the loans. What we are seeing are more club deals where the finance is effectively syndicated before the deal closes. If the risk cannot be spread then the projects simply do not happen.’

Guardo notes that many banks are also being strategic about which other banks they work with. ‘Institutions are taking turns as the lead underwriter, with one or two relationship banks preparing the way for other financial entities to join in. Companies have therefore to ensure they have a sufficiently strong relationship with a bank that can attract others to the deal.’

Club deals inevitably take longer to arrange and close and deals are therefore also taking longer, he says. ‘There is much more individual analysis of what is being proposed. It is common to see deals with eight or ten banks providing finance and each will have something to say on the contractual terms on offer.’