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Structured products

Very often large corporations at certain stage of development need not just use debt/share capital financing for further growth, but - in some cases - to reduce the cost of financing using structured products. In the situations of high market volatility and credibility gap between financial institutions use of structured products is the only way for corporations to mobilize financing.

UFS team is one of the best in the structured products market; it has placed several unique structured products in the market.

Syndicated loan (also participation loan) — - loan provided to borrower by, at least, two (or more) lenders (lenders syndicate) who participate in this deal in certain proportions in the frame of single credit agreement.

Parties involved:

Arranger — is a bank responsible for deal preparation; it organizes negotiations with the borrower and syndication among participants. Arranger could also serve as an Agent bank and syndication participant.

Syndication participant — a member of lenders syndicate; the syndicate provides syndication loan.

Agent Bank — — - bank which manages the loan after signing of credit agreement or performing additional functions on credit management (for example, agent on collateral). It is worthwhile to note that (for the Borrower) reimbursements on syndicated loan are not more complicated in comparison with usual one since all payments to be made for benefit of Agent Bank; upon receipt of funds the Agent Bank redistribute funds between syndicate participants.

Syndicated loans is an intermediary instrument between bonds and ordinary bank loans. Since in the case of syndicated loans risks are distributed between several lenders it becomes possible to borrow more money and, as a rule, for longer periods in comparison with ordinary bank loans. Main parameters of the deal - i.e. volume, period and rate - usually become known to the public; so the Borrower creates its own public history which could help him on the next entry to debt capital market. On the other hand, share in the syndicated loan is less liquid, of course, than bonds liquidity, but much higher than ordinary bank loan liquidity. Sale of share in syndicated loan (due to some reason) does not look as something extraordinary in the market. On the other side, as a rule, the Borrower obtains an opportunity to borrow funds (usually for short periods) in banks participating in syndicate.

In some cases (especially in the crisis environment) less liquid debt is positive for the Borrower. For example, in the second half-year 2007 - beginning of 2008 the trend was observed that borrowing via bonds (including eurobonds) were substituted by syndicated loans since all debt securities felt drastically and in these conditions syndicated loans became much more attractive for investment banks in comparison with new bonds launches on the falling market.

Syndicated loan is rather flexible instrument; various interests of borrower and lenders could be taken into account. For example, syndicated loan could be disbursed via several tranches which could differ in maturity schedule or loan drawdown date, or even in currency of the loan (multicurrency loan); different rates could be used for different tranches (for example - fixed rate for one tranche and floating rate for another one); advanced repayment (partial or complete) conditions could be used if necessary. In order to reduce credit risks (and borrowing rate as a consequence) certain covenants or various forms of collateral could be used.

Borrower's expenses on this syndicated loan (apart from interest) include Arranger's fee and fees of the third parties as well (Legal Adviser, for instance). In order to obtain acceptable borrowing rate is makes sense to organize syndicated loans for rather long (more than a year) period and for rather large (more than RUB 500 mio) amount.