In short, every union is a consortium, but not all consortia are a consortium. When it comes to loans, the big difference (in my opinion) is that the lender can`t repay. With a consortium, the lender can repay one bank and fail another. With a consortium, there is only one loan, the lender has to fail on the entire loan, which can lead to legal complexities and confront the borrower with other legal consequences. They may look the same and the two terms are used as synonyms for each other, but there are technical differences when it comes to operations, procedures, relationships, legal complexities, etc. Sometimes the participating banks form a new syndicated bank, which operates through the use of each institution`s assets and dissolves once the project is completed. By allowing all members to pool their assets, consortia allow smaller banks to tackle larger projects. Depending on how the loan agreement is drafted, each of the participating banks may act as the lead or assume responsibility for the managing bank. Syndicate as a term in the general sense has its origin in American credit syndication refers to a lending process in which a borrower turns to a bank to obtain a loan amount that is relatively high and also includes international transactions and various currencies. Here, when a bank is approached by a customer for the use of a loan, said bank combines the interest and other credit terms of the loan with the customer and turns to other banks for the sale of that loan. The other banks, if they agree, „buy“ part of the loan on the same or different terms.
In a credit syndication process, the customer negotiates with only one bank. The bank to which the borrower turned to arrange a loan is called the management bank, which is responsible for negotiating the terms and organizing the amount of the loan. Here it should be noted that the managing bank does not need to be the „majority lender“ or the „main bank“, but only plays the role of the manager in organizing the loan amount in cooperation with other banks. Under the terms of the contract, each bank can play the role of bank manager. The lead bank acts as a recruitment bank of other sufficient banks in lending, negotiating terms, negotiating the details of the agreement and preparing documentation. The bank that has received the mandate of the potential borrower and is responsible for the placement and management of the loan process, its terms and conditions and its completion is called the senior manager, lead bank, syndicated bank. You are entitled to a referral fee and are exposed to reputational risk. A credit syndication is similar to a consortium, although there are structural and operational differences between the two. Faced with higher defaults, banks have become more cautious about non-investment grade corporate loans. They began pushing more corporate credit accounts to enter into syndicated loan agreements to improve access to information and avoid surprises. These banks have a joint agreement between them. Sometimes participating banks form a new syndicated bank to take care of the loan financing process, use the assets of each institution and eventually dissolve once the project is complete.
The lender who has taken the highest risk (by giving the highest loan amount) acts as a guide and manages all transactions, agreements, etc. between the consortium and the borrower. The consortium agreement is a crucial document and not easy to draft. It must be clear about the rights and obligations of the parties, which must be firmly aligned with the objective of the consortium. Credit syndication usually occurs when multiple banks lend money to a borrower at the same time and for the same purpose. .