How the Syndicated Loan Industry Is Finally Getting Automated -

While technology has transformed many areas of finance, one corner that’s remained relatively untouched — at least until recently — is the opaque world of syndicated loans. That’s because most deals involve hundreds of pages of bespoke agreements that can be hard to automate. But as annual issuance in the global loan market reached $5 trillion by 2022, almost doubling from 2010, and as compliance rules get tougher, the pressure for digitization has grown and opportunities for new “fintech” platforms have opened up.

1. How was loan syndication done in the past?

Back in the 1980s and 1990s, banks used an array of manually driven processes to share information with other lenders when they formed a group to provide financing to companies for investment, expansion or acquisitions. Syndication desks mainly used platforms such as Debtdomain in Europe and Asia, and Intralinks and SyndTrak in the US, for posting primary market deal information, conducting bookrunning and issuing invitation letters. Lenders would then print out materials to review. Once deals closed, data from the agreements were typed into servicing systems and disseminated via fax or later email.

2. What’s changed?

These existing platforms and a host of new competitors are now providing more than just a portal for posting information. Bankers are using them to automate loan documentation and conduct the entire syndication process. Systems like Debtdomain and SyndTrak are also being employed by traders and brokers in the secondary market — the buying and selling of loans between third parties. These and newer rival electronic platforms can be used for all the above, as well as for portfolio management and loan settlement. A couple of platforms also allow loan buyers to connect with borrowers if they need more information. Sometimes, lawyers may use them to post documentation.

3. Why all the new platforms?

The market’s rapid growth made it impractical for bankers to phone long lists of potential lenders for a single transaction. Automation means they can use the time instead to generate more deals. Platforms today are more secure and closely audited, helping banks to meet their compliance needs. They also offer quicker turnaround times for secondary loan sales, so less of a bank’s available capital is stuck in limbo while a sale completes. Even as market volumes dropped in 2023, new and competing fintech platforms are still emerging. It’s hard to track how many of these new providers are available for the loan market as some major banks also have their own internal systems.

4. What else do they offer?

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• Sharing the same electronic marketplace means bankers get more visibility on activity across the market.

• All major platforms provide communication between arrangers, sellers or agents and potential lenders and buyers, and sometimes borrowers and lawyers.

• Most offer a data room comprising documentation and agreements, to which selected lenders gain access by signing non-disclosure agreements.

• Certain platforms, using algorithms based on previous transactions, suggest lenders who might be interested in specific deals. And some allow confidential marketplaces to showcase what a seller wants to display and choose which potential buyers to target.

• Several also offer market analytics, such as lender share or pricing analysis to help with marketing deals, and centralized data sharing of loan details including banks’ outstanding positions.

5. Where is the market heading?

Bankers complain that technology adoption for loans has been slow compared with other markets such as bonds or equities because there’s no standardization and markets within Asia, Europe, Middle East and Africa are fragmented. More platforms could arrive targeting niche segments of the loans market, and some of those could end up being merged into larger entities to bring scale to their business. A case in point is VC Trade, a Germany-based vendor with roots in the local promissory notes market, which announced the acquisition of ING Bank’s Loan Optics service in early 2023. In addition, some are coming up with additional features to cope with new loan structures such as Finastra’s ESG service for sustainability-linked loans.

Note: Listed functions do not reflect all services of individual vendors

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