NMa: limited choice for undertakings when seeking syndicated loans
Undertakings that have to turn to syndicated loans when seeking substantial, complex, or high-risk loans need to apply to more banks now than before the financial crisis. At the same time, these undertakings have less banks to choose from. In fact, sometimes there is no choice at all. This situation is affecting the undertakings' bargaining positions, says the Netherlands Competition Authority (NMa), having analyzed the market for syndicated loans and club deals.
The NMa has found that the number of banks that are active on the Dutch market for club deals and syndicated loans has fallen. The most important reason for this drop is the decrease in the number of mergers and acquisitions that have taken place in the Dutch banking industry. In addition, as a result of the financial crisis, foreign banks have withdrawn from this market to focus on their home markets instead. A return of these foreign players that used to be active on the Dutch market might positively affect competition on the market because it would increase the number of players. The NMa has also found that banks that are still active on this market have become more prudent when it comes to giving individual undertakings substantial loans, in part because they have limited resources. The number of international syndicated loans has seen a slight increase recently, which may prove to be a harbinger for the market's recovery. The Dutch market might pick up soon as well.
Undertakings that have had experience with syndicated loans can reap considerable benefits, the NMa's study revealed, because this knowledge strengthens their bargaining positions, and it enables them to better assess what loan conditions are in line with market conditions.
Syndicated loans or club deals involve financing agreements between one undertaking and two or more banks. Banks form a consortium and collectively agree to give an undertaking a loan against the same loan conditions. By offering the syndicated loans or club deals together, the banks thus spread the size of the loan or club deal, as well as its risks.
The study's objective was to identify possible risks concerning competition law or to the market dynamics. The NMa held interviews with various undertakings and financial advisors. The NMa also consulted with banks that offer syndicated loans or club deals in the Netherlands. The NMa has found no indications of violations of the Dutch Competition Act on the market for club deals and syndicated loans.
The NMa calls on undertakings to report possible violations of the Competition Act, such as cartels, price-fixing agreements or market sharing, to the NMa, preferably with supporting evidence. It is these indications and tip-offs that enable the NMa to increase its knowledge of a certain industry, and to track down possible violations. The NMa receives approximately 4,000 indications a year concerning possible violations of the Competition Act. Tip-offs can be submitted (also anonymously) to the NMa by calling the NMa Information Line at +31-70-3301306.