Strategy 5: Best Efforts Strategy

In this strategy the lead arranger agrees to underwrite less than 100 % of the loan (typically the amount it is prepared to hold on its own balance sheet after general syndication) and attempts to place the remainder in the bank market.

The final allocation would be Chase at 300 Mn. HK$ 30 lead managers at 100 Mn. HK$ each.

Risk and Trade offs

The borrower pays the lead arranger an arrangement fee for its services and pays other lenders closing fees for their commitments. Thus, the borrower takes the risk that the market does not accept the deal and that it might have to pay higher fees or spreads to entice greater participation.

Best effort vs. Underwritten deal

In an underwritten deal, the borrower pays a single up-front fee to the lead arranger/underwriter, which retains some as compensation for its services and uses the rest as closing fees for banks participating in the syndication. As the underwritten deals can get funded faster, the underwriting fee is generally higher than the up-front fees in a best efforts deal because the underwriter faces greater credit and syndication risks.

Impact of different Syndication Strategies:

Hold Amounts (HK$ mn) Chase Mandate SubUnderwriting Number of banks Chase Coordinating Arrangers (other #1 (Ex 8a) #2 (Ex 8b) Sole Yes Joint No #3 (Ex 8c) #4 #5 #6

Sole No

Sole No

Sole No

Joint Yes

$300 $300

1 0

1 2

1 0

1 0

1 0

1 2

Mandated Banks) Lead Arrangers (Subunderwriters) Arrangers Co-Arrangers Lead Manager Total Total # Banks Chase Fees in US$000 Chase Max. Exposure (HK$mn) Chase Exposure in the General Syndication HK$ in mn US$ in mn Chase Fees/ Chase Gen. Synd. Exposure Banks Needed to control 60%

$300

$250 $150 $100

4 4 2

4 6 5

4 8 8

12 0 0

0 0 30

4 2 2

15 $1,776 $3,300

18 $1,126 $1,100

21 $2,995 $3,300

13 $2,596 $3,300

31 $3,365 $3,300

14 $884 $1,100

$660

$1,100

$3,300

$3,300

$3,300

$550

$85 0.021

$141 0.008

$423 0.007

$423 0.006

$423 0.008

$71 0.013

10

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