Having decided what type of syndicate you are going to have, the next decision is how you're gonna pay for the syndicate and how you're going to distribute the fees. Let's first look at the different types of fee that you have.
The commitment fee is for guaranteeing funds on things like the revolving credit facility. There will be fees to lawyers and accountants. There will also be an arrangement fee, which is a fee for giving the loan out.
The underwriting fee will be split amongst the different syndicate members, and so the initial syndicate will probably get about 70% of the fees when it's sold down to the banks, which are participating but aren't an initial group, they'll only get about 30%. So you can see it's a really unequal split, and this is even if they sell down more than 80% of the loan during the second phase of the syndication. The way the mechanics work is typically the fee is paid to the mandated leader arranger and then is paid to the initial syndicate and then is paid down in a second tranche. In the second phase of syndication, the whole process is driven by the mandated leader arranger and they do the negotiation of fees. So it's absolutely critical if you can be in the MLA's position. So if you want high fees, it's important to be in the MLA's position as they generally end up with a really big chunk of the fees, despite the fact that they're only gonna end up providing a minority of the amount of financing once the syndication is finished. Let's have a look at some numbers. As you can see here, we've got a breakdown of fees and we've got a two stage underwriting process, an initial stage with the smaller number of banks, in this case, just three, and then the second stage. So in stage one, we've got total financing of 300. The first stage banks are getting 1% fee for that, which is 3 million or three. Now the 3 million isn't split equally amongst the three banks, despite the fact that they're participating in an equal amount. The MLA providing 100 million, but they're getting 1.5 million in fees, whereas the co-leading banks are contributing 100 million as well, but they're only getting 750,000 in fees. In stage two of the syndication process, again, the amount is 300 million. That's the total funding, but then there's an additional fee or additional fees of 1%, which have been distributed to the second round of funders. And you can see here the MLA started out with a hundred million of financing, but they've sold down 80 million and they've only ended up with 20. And that's true of the other banks. In the initial syndicate, they sold down 80 million each and are left with 20 million. So the other participants, and there are five of them, have in total bought 240 million from the initial participants. One of them has ended up with 40 million, and the rest have ended up with 50 million each. The 3 million of fees is split on a pro-rata basis across those five banks on the far right and the last two columns, you can see the amount each individual bank got, which totals everything to the left, a total of 6 million. And the next and last column is the amount of fees they get based on a percentage of the loan they provided. So the MLA ends up providing 20 million of loan, but gets 1.5 million in fees, and this represents a massive 7.5% of the loan. Whereas if you look at the second syndicate, you're providing 50 million, you're getting 630,000 in fees, and that's only 1.25% of the underlying loan. And this helps us to see that the mandated lead arranger gets a much better return on money than if you're a participant. And actually, if you're a co-lead, you are not as good a position as the MLA, but you are in a much better position than the participant. This is an example of an unequal fee split, which is very normal in this syndication process.
