Let's have a look at how a syndicate of banks is formulated. Banks get together in the syndicate primarily because they want to spread the risk. They don't want to take a loan for one huge project onto their balance sheet because it concentrates risk.

Not all banks are going to be equal in the syndicate. Some are going to be more equal than others, and if you are top, you get a lot more fees than the others. We use syndication because it helps banks spread the credit risk and digest very, very large loans. And those are the kinds of loans that we'll be seeing in financing big projects. It's also a quid pro quo system. You want syndicate a loan to other banks because when they get a similar loan, they'll want to syndicate it to you, so it has a kind of community feel to it.

So how many banks should you invite to a syndicate? The top bank numero uno is known as the mandated lead arranger, and we'll often call that the MLA. They'll get the bulk of the fees and they're the most important institution in the structure. You could invite many banks to the syndicate. The benefit of having many banks is that you can spread the risk far and wide. You'll also have more negotiating power because you'll be spreading out small amounts to lots of banks, and that generally means you can try and keep more of the fees to yourself. Assuming that you are the MLA. There's probably less likelihood that the project will resort to bankruptcy because it pretty much shuts them out of any bank lending in the future. They've declared bankruptcy on lots of banks. However, if you have too many banks and in the case of Euro tunnel they had after the syndication process, 200 banks, coordination can be really, really difficult. Alternatively, you can actually confine it to a small number of banks. Obviously, if the loan is smaller, this makes more sense in the first place. If you have a small number of banks, you'll generally have less negotiating power. One benefit is it's more confidential and you can execute the loan faster. So there's a kind of playoff between having a large number of banks and a small number of banks in the syndicate. So which banks should you invite to the syndicate? Obviously banks which know that sector, or banks which know the geography. Also banks that you have a good relationship with because if you are negotiating and you have a potential workout situation when things go wrong, it's better to be working with banks that you have a relationship with. You may also find that some of the sponsor or the shareholders in the project will say that they want Bank X, Y, Z involved. The mandated leader arranger won't be able to syndicate all the loans, so they'll have to keep a certain amount of the loan on their balance sheet, and that's known as the final taker. They can't syndicate too much because that would send a bad signal to the market, but the more they syndicate, the greater the return they're gonna get because of the amount of fees they generate, generally not proportional to the amount that they're taking as a loan. This incentivizes them to end up with the least amount of loan relative to the fixed fee.