14 LOAN PRODUCT ARCHITECTURE

14.1 Syndicated Loan Product Scope

The Syndicated Loan Business Working Group collectively decided to focus on designing one-way borrower-centric notifications. These notifications comprise most of the manual traffic that both agent banks and lenders must process on a daily basis.

The Syndicated Loan Working Group extended FpML to cover:

In order to fully describe the notifications, it was necessary to design the following supporting object types, all of which are embedded within various notification types:

14.2 Overall Architecture

14.2.1 Syndicated Loan Product Overview

14.2.1.1 Business Description

A "Credit Agreement" is a legal document which outlines the various financing options available to the "Borrower(s)" (referred to with the credit agreement). The financing terms are structured within the document using a set of well-defined products. Within the loan industry a single credit agreement is referred to as a "Deal".

Within a deal there are one or more "Facilities"; in effect, each facility is a distinct credit line with its own notional limit. Within the secondary loan markets these facilities are often referred to as "Tranches". In the FpML language, the business group preferred usage of the term, facility.

Each facility can be “Utilized” up its notional limit. Utilization occurs with one or more "Loan Contracts". A loan contract is a single instance of an actual borrowing made and is the source for generating the interest-based cash flows. The sum of the current outstanding loan contracts is what was previously referred to as the "Utilization Level of the Facility". The balance of the loan contracts could be either static, amortizing/increasing over time or fluctuating on an intra-day basis (depends on the type of facility and the type of loan contract).

Every credit agreement is managed by an "Agent Bank". The agent bank is responsible for ensuring correctness of all cash flow to and from the borrower. Syndicated loans of this type are usually shared between groups of "Lenders". The agent bank is also responsible for all lender cash flow.

14.2.1.2 Business Flow

The diagram below represents the high-level flow within the syndicated loan product. The notices are used for communication of various business events by the agent bank to the lender community.

images/loan/NoticeGeneration.jpg

Figure 1: Loan flow showing notice generation

14.2.1.3 Business Requirements

Refer to the Requirements Document for detailed information: LSTA Agent Bank Communications Requirements Document (PDF)

14.2.2 Architecture

The diagram below represents the high-level flow within the syndicated loan product. The notices are used for communication of various business events by the agent bank to the lender community.

images/loan/ObjectHierarchy.jpg

Figure 2: Syndicated loan object hierarchy

The Loan Contract Summary and Facility Commitment Position objects do not inherit from any existing FpML structure, since they do not fit into existing definitions of any of the base objects.

14.2.2.1 Deal Summary

The Deal Summary is a high-level representation of the credit agreement.

images/loan/DealSummary.jpg

Figure 3: Deal Summary (short-form)

14.2.2.2 Facility Summary

The Facility Summary is a high-level representation of a single facility within a Deal (credit agreement).

images/loan/FacilitySummary.jpg

Figure 4: Facility Summary (short-form)

14.2.2.3 Loan Contract Summary / Loan Contract

The Loan Contract has been defined in both short and long form. Not all aspects have been captured in each phase but this definition will expand as the standard progresses.

images/loan/LoanContractSummary.jpg

Figure 5: Loan Contract Summary (short-form)

Explanations:

  • Although there can be multiple borrower against the loan contract, only the main borrower is shown for the purposes of loan contract identification.
  • It is important to note that only the original amount of the loan contract is represented. This is the only value that remains constant and can be used for identification purposes.

This object reflects the full details of the loan contract, as currently defined. Embedded within the loan contract is the current interest rate period (see Figure 7: Interest Rate Period).

images/loan/LoanContract.jpg

Figure 6: Loan Contract (long-form)

Explanations:

  • The loan contract must exist within a given facility/deal.

The loan contract contains a "currentInterestRatePeriod". This describes the underlying base and margin rates currently applied to the loan contract. This is core to the definition of the loan contract.

images/loan/CurrentInterestRatePeriod.jpg

Figure 7: Interest Rate Period

14.2.2.4 Letter of Credit

This object reflects the full details of the Letter of Credit contract.

A core structure, describing a Letter of Credit. L/C is an agreement by issuing bank to a beneficiary (usually someone who does business with the borrower) to provide funding to beneficiary in the event when the borrower fails to make a payment to the beneficiary, in their normal course of business.

In the event that the borrower fails to make a payment to the beneficiary, the beneficiary can immediately request funds from the issuing bank, and the issuing bank must then be reimbursed by either the borrower or the lenders. If the lenders fund, then the LC is effectively transformed into a loan contract.

images/loan/LetterOfCredit.jpg

Figure 8: Letter of Credit

14.2.2.4.1 Letter of Credit Summary

A basic set of fields to identify an LC. Please note that the partyReference within the contract identifier should refer to the Issuing Bank.

images/loan/LcIdentifier.jpg

Figure 9: Letter of Credit Summary

14.2.2.5 Facility Commitment and Loan Contract Position

These objects are used to define the lender position at a given point in time.

images/loan/FacilityCommitmentPosition.jpg

Figure 10: Facility Commitment, Loan Contract Position and Letter Of Credit Position

14.2.2.6 Facility Notice Type

This is an abstract object type that defines all fields which are common to facility-level notifications.

images/loan/FacilityNotice.jpg

Figure 11: Facility notice type base object

14.2.2.6.1 Repayment Notice

This template can be used for scheduled, unscheduled (mandatory and voluntary) notices.

images/loan/RepaymentNotice.jpg

Figure 12: Repayment Notice

14.2.2.6.2 On-Going Fee Notice

images/loan/OnGoingFeeNotice.jpg

Figure 13: On-Going Fee Notice

The on-going fee notification is dependent on the underlying value of the fee margin as well as the position held by the lender throughout the fee period. The business required us to provide this information within the Fee Accrual Schedule object, as shown below.

images/loan/FeeAccrualSchedule.jpg

Figure 14: Fee Accrual Schedule

14.2.2.6.3 One-Off Fee Notice

This notice represents the scenario where one-off payments are made by the borrower. These payments may be associated with a facility or a specific loan contract or L/C level – the fee type will determine the level.

images/loan/OneOffFeeNotice.jpg

Figure 15: One-off Fee Notice

The optional loan contract summary provides a possible link for this cash flow to a specific loan contract..

14.2.2.6.4 Rollover Notice

This notice represents the scenario where agent bank is communicating the event of rollover to the lenders. Loans are usually based on an underlying rate (typically LIBOR). These quoted rates are usually of shorter tenor than the facility within which a particular loan is contained (e.g. 3 month LIBOR). These shorter tenor loans must undergo a rate reset process, which allows the lender to re-establish the underlying rate associated with the loan. This process is termed a ‘rollover’ within the syndicated loan market. During a rollover, it is possible that the borrower may:

  • Repay principal.
  • Pay interest.
  • Combine or split multiple outstanding loans into a different borrowing configuration.

images/loan/RolloverNotice.jpg

Figure 16: Rollover Notice

14.2.2.6.5 Pricing Change Notice

images/loan/PricingChangeNotice.jpg

Figure 17: Pricing Change Notice

14.2.2.6.6 L/C Issuance Notice

This notice represents the scenario where the agent bank is communicating the fact of issuing L/C by the issuing bank to the lenders.

images/loan/LcIssuanceNotice.jpg

Figure 18: L/C Issuance Notice

14.2.2.6.7 L/C Balance Notice

This notice represents the scenario where the issuing bank communicates the updated L/C balance to the beneficiary. Throughout the life of a letter of credit, it is possible for the borrower to either increase or decrease the notional value of the L/C. These balance changes are subject to the rules stated on the credit agreement. Two main scenarios exist:

  • The balance of the L/C can shift on request from the borrower due to a change in the financing requirement between the borrower and the beneficiary of the L/C.
  • The L/C balance of the L/C can shift based on the fact that there has been a failure to pay on the part of the borrower to the beneficiary.

images/loan/LcBalanceNotice.jpg

Figure 19: L/C Balance Notice

14.2.2.6.8 L/C Amendment Notice

Letter of Credit amendment notice.

images/loan/LcAmendmentNotice.jpg

Figure 20: L/C Amendment Notice

14.2.2.6.9 L/C Termination Notice

Letter of Credit termination notice. L/C(s) can either expire or be cancelled; both of these scenarios would be captured by this notice.

images/loan/LcTerminationNotice.jpg

Figure 21: L/C Termination Notice

14.2.2.7 Loan Contract Notice Type

These notices are actions which take place against a specific loan contract. The loan contract notice generic type contains either the loan contract summary or full definition of the loan contract.

images/loan/LoanContractNotice.jpg

Figure 22: Loan Contract Notice Type

14.2.2.7.1 Drawdown / Rate Set Notice

This is a notification which alerts the lender community of an upcoming loan contract. The notice covers only a (vanilla) funded loan.

images/loan/DrawdownNotice.jpg

Figure 23: Drawdown / Rate Set Notice

14.2.2.7.2 Interest Payment Notice

These notices reflect the amount of interest due to a specific lender.

images/loan/InterestPaymentNotice.jpg

Figure 24: Interest Payment Notice

It is important to highlight the Interest Accrual Schedule associated with each interest payment.

images/loan/InterestAccrualSchedule.jpg

Figure 25: Interest Accrual Schedule

Previous Top