BANKING AND DEBT FINANCE LAW AND PRACTICE
Workshop 1
Guide
Syndicated Facilities (1): Introduction to Bank Lending and Debt Securities
Context
Companies all need to raise some form of finance from time to time. Whether it be to
fund an acquisition or to provide working capital, there are many reasons behind the
need for finance, but the finance itself will either be sourced from equity (issuing new
shares) or debt (borrowing from a lender), or perhaps a combination of the two.
This module is solely concerned with debt finance. There are two main types of debt
finance: borrowing a loan from a lender (typically a bank or other financial institution)
and borrowing through issuing debt securities on the capital markets. While the
concept of a loan will be familiar, debt securities may be less so. In a debt securities
issue, the borrower (the ‘issuer’) receives money from the lenders (the ‘investors’) in
return for which it issues them with a debt security (a glorified ‘IOU’) containing a
promise to repay the investor on a set future date, usually (but not always) with
interest. A bond is a common form of debt security.
There are many factors a company must consider when deciding on the best method
for it to raise debt finance. These are mainly commercial and practical in nature,
rather than legal. While commercial decisions are ultimately for your client, it is
nevertheless important that you understand the commercial context of the
transaction, ensuring that the arrangements that you are asked to put in place protect
your client’s interests as far as possible.
In this introductory Workshop you will first look at some of the legal, commercial and
practical considerations influencing a company’s choice of whether to borrow the
sums it requires from a bank or to issue debt securities. You will then consider debt
finance from the perspective of the lending banks. You will consider the risks that
lenders take into account in deciding whether or not to lend and on what terms, and
how they approach the issue of security. You will also consider how a bank funds
itself in the interbank market, how this affects the calculation of the interest rate that a
borrower will pay under its loan and the proposals for replacing LIBOR and other
inter-bank offered rates with so-called ‘risk-free rates’.
docs_193347119.docx 161 © The University of Law Limited
,Outcomes
By the end of this Workshop you should be able to:
1. Explain the key differences between borrowing under a loan and a debt
securities issue.
2. Analyse and evaluate the factors influencing a company’s choice of financing.
3. Identify potential areas of concern for banks lending to borrowers, explaining
how these issues might be addressed and what further information may be
required in order for the banks to reach a decision about whether or not to lend.
4. Explain how banks fund themselves in the interbank market and how interest is
calculated under a syndicated floating rate loan agreement.
5. Explain why LIBOR is to be replaced.
Workshop Tasks
In this Workshop you will:
1. Explain the principal differences between borrowing under a syndicated loan
agreement and a debt securities issue, and consider the factors that might
influence a company in its choice of funding.
2. Analyse a case study to identify potential areas of concern for lending banks.
3. Advise on how interest is calculated under a syndicated floating rate loan
agreement at the moment and how it is likely to be calculated in the future.
Preparation
To prepare for this Workshop you should:
1. Complete the following reading:
Banking and Capital Markets textbook: Chapters 1-4, 9 (excluding the
section on Withholding tax) and 17 (the sections on What is a capital
market? and Credit rating only).
PLC Practice Note: Methods of raising debt finance.
Speech given by Andrew Bailey, Chief Executive of the FCA, on 27 July
2017
2. Complete the Preparatory Tasks. Note that the research required for
Preparatory Task 1 will extend beyond the compulsory reading.
3. Complete the Test and Feedback Workshop 1 (Preparation).
4. View Lecture 1: Introduction.
© The University of Law Limited 162 docs_193347119.docx
, Note that the series of recorded lectures includes a lecture on Financial Regulation
(Lecture 5). The content of this lecture is not examinable but you are recommended
to view it during the course as it will help you prepare for practice.
Materials required for the Workshop
Please bring with you to the Workshop:
1. Banking and Capital Markets textbook
2. Your Test and Feedback answers
3. Your answers to the Preparatory Tasks
Consolidation after Workshop
It is important that you consolidate your learning after the Workshop. In particular you
should complete the Test and Feedback Workshop 1 (Consolidation).
docs_193347119.docx 163 © The University of Law Limited
Workshop 1
Guide
Syndicated Facilities (1): Introduction to Bank Lending and Debt Securities
Context
Companies all need to raise some form of finance from time to time. Whether it be to
fund an acquisition or to provide working capital, there are many reasons behind the
need for finance, but the finance itself will either be sourced from equity (issuing new
shares) or debt (borrowing from a lender), or perhaps a combination of the two.
This module is solely concerned with debt finance. There are two main types of debt
finance: borrowing a loan from a lender (typically a bank or other financial institution)
and borrowing through issuing debt securities on the capital markets. While the
concept of a loan will be familiar, debt securities may be less so. In a debt securities
issue, the borrower (the ‘issuer’) receives money from the lenders (the ‘investors’) in
return for which it issues them with a debt security (a glorified ‘IOU’) containing a
promise to repay the investor on a set future date, usually (but not always) with
interest. A bond is a common form of debt security.
There are many factors a company must consider when deciding on the best method
for it to raise debt finance. These are mainly commercial and practical in nature,
rather than legal. While commercial decisions are ultimately for your client, it is
nevertheless important that you understand the commercial context of the
transaction, ensuring that the arrangements that you are asked to put in place protect
your client’s interests as far as possible.
In this introductory Workshop you will first look at some of the legal, commercial and
practical considerations influencing a company’s choice of whether to borrow the
sums it requires from a bank or to issue debt securities. You will then consider debt
finance from the perspective of the lending banks. You will consider the risks that
lenders take into account in deciding whether or not to lend and on what terms, and
how they approach the issue of security. You will also consider how a bank funds
itself in the interbank market, how this affects the calculation of the interest rate that a
borrower will pay under its loan and the proposals for replacing LIBOR and other
inter-bank offered rates with so-called ‘risk-free rates’.
docs_193347119.docx 161 © The University of Law Limited
,Outcomes
By the end of this Workshop you should be able to:
1. Explain the key differences between borrowing under a loan and a debt
securities issue.
2. Analyse and evaluate the factors influencing a company’s choice of financing.
3. Identify potential areas of concern for banks lending to borrowers, explaining
how these issues might be addressed and what further information may be
required in order for the banks to reach a decision about whether or not to lend.
4. Explain how banks fund themselves in the interbank market and how interest is
calculated under a syndicated floating rate loan agreement.
5. Explain why LIBOR is to be replaced.
Workshop Tasks
In this Workshop you will:
1. Explain the principal differences between borrowing under a syndicated loan
agreement and a debt securities issue, and consider the factors that might
influence a company in its choice of funding.
2. Analyse a case study to identify potential areas of concern for lending banks.
3. Advise on how interest is calculated under a syndicated floating rate loan
agreement at the moment and how it is likely to be calculated in the future.
Preparation
To prepare for this Workshop you should:
1. Complete the following reading:
Banking and Capital Markets textbook: Chapters 1-4, 9 (excluding the
section on Withholding tax) and 17 (the sections on What is a capital
market? and Credit rating only).
PLC Practice Note: Methods of raising debt finance.
Speech given by Andrew Bailey, Chief Executive of the FCA, on 27 July
2017
2. Complete the Preparatory Tasks. Note that the research required for
Preparatory Task 1 will extend beyond the compulsory reading.
3. Complete the Test and Feedback Workshop 1 (Preparation).
4. View Lecture 1: Introduction.
© The University of Law Limited 162 docs_193347119.docx
, Note that the series of recorded lectures includes a lecture on Financial Regulation
(Lecture 5). The content of this lecture is not examinable but you are recommended
to view it during the course as it will help you prepare for practice.
Materials required for the Workshop
Please bring with you to the Workshop:
1. Banking and Capital Markets textbook
2. Your Test and Feedback answers
3. Your answers to the Preparatory Tasks
Consolidation after Workshop
It is important that you consolidate your learning after the Workshop. In particular you
should complete the Test and Feedback Workshop 1 (Consolidation).
docs_193347119.docx 163 © The University of Law Limited
