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A CASE REPORT ON CHASES STRATEGY FOR SYNDICATING THE HONG KONG DISNEYLAND LOAN (A)
Submitted By: GROUP 10 175 Samridhi Sharma 177 Ujjwal Kumar 371 Aditya Shekhar 375 Harshit Yadav 381 Anshu Upadhyay
Problem Statement
How these six different syndication strategies do affects the risks and returns Chase might face as the lead manager?
Introduction: Chase
It was highly predictable that Disney would contact Chase Manhattan Bank. One of Disneys top 10 relationship banks. Chase was the third largest bank in the U.S. (> $400 bn assets and $175 bn loans in 1999).A leader in the field of syndicated finance. In 1999, lead arranger for 34% of total syndicated loans by dollar volume in the US (nearest competitor: 21%).Dominant in US market for loans greater than $1bn; led 47.5% of deals, 3 times more than the nearest competitor.
This strategy required only 2 additional underwriting commitments instead of 4 prior to the general syndication, but it meant sharing league table status as well as giving up two-thirds of the underwriting fee RISK AND RETURN TRADE OFF: 1. Commitment to underwrite the full amount (General Syndication) Exposed the bank to greater risk; sought senior mgmt. approval This proposal would: o o o o show Chases support for the client, signal its confidence in the deal, and Provides greater profit for the firm. It might also set Chase apart from other banks that were unwilling to underwrite the deal and o increase the probability of winning a sole mandate deal o Greater syndication risk and credit risk if deal is undersubscribed. 2. Having underwriting: o Chase shares the risk o Chase shares fees also with other banks o Involving more banks and especially prominent banks as lead arrangers or underwriters facilitate syndication o Low fees and low risk
The final allocations would be: Chase at HK$300 mn 4 arrangers at HK$250 mn each 8 co-arrangers at HK$150 mn each 8 lead managers at HK$100 mn
Relative to the other 2 strategies this strategy would: improve Chases compensation and league table status , but would expose it to the greatest amount of credit and syndication risk, and Would result in the largest syndicated as measured by the no. of participating banks.
Although this strategy generates the most compensation, the total fees earned only
accounts 0.71% of the total exposure.
Sole Yes
Joint No
Sole No
Sole No
Sole No
Joint Yes
Coordinating $300 Arrangers (other Mandated Banks) Lead Arrangers (Sub- $300 underwriters) Arrangers Co-Arrangers Lead Manager Total Total # Banks Chase Fees in US$000 $250 $150 $100
4 4 2
4 6 5
4 8 8
12 0 0
0 0 30
4 2 2
15 $1,776
18 $1,126
21 $2,995
14 $884
Chase Max. Exposure (HK$mn) Chase Exposure in the General Syndication HK$ in mn US$ in mn Chase Fees/ Chase Gen. Synd. Exposure Banks Needed control 60% to
$3,300
$1,100
$3,300
$1,1 00 $550
$660
$1,100
$3,300
$85 0.021
$141 0.008
$423 0.007
$423 0.006
$423 0.008
$71 0.01 3 7
10
18