![]() ![]() ![]() As lifelong learners, we believe training is important. Our clients include some of the largest accounting firms and companies in the world. ![]() GAAP training, IFRS training, or audit training, we’ve helped thousands of professionals since 2001. We don’t think of training as a “tick the box” exercise, but rather an opportunity to empower your people to help them make the right decisions at the right time. We’re a DIFFERENT type of accounting training firm. Once this determination is made, it’s on to the accounting analysis! Often it is a legal determination that will dictate whether it is a loan participation or syndication. Therefore, the only way to know whether you are dealing with a participation or syndication is the READ the loan agreements! Careful consideration should be given to the legal underwriters and parties to the contract, contractual terms of the instruments, and other conditions to make a final analysis. For these loans, other than its own originated loan, the lead syndicate will need to recognize a servicing asset (or liability) in accordance with ASC 860.Īs it is illustrated above, these two arrangements (a loan participation and syndication) have unique terms even though they achieve the same economic result. Also, these arrangements may involve the lead syndicate servicing the series of loans on behalf of the syndicate banks. Some of these fees may represent “syndication fees” for arranging the deal, as well as typical lenders fees for the loan it has underwritten itself. However, there are some issues for the lead syndicate bank involving revenue recognition related to the fees it collects from the borrower. ![]() As a result, ASC 860 and the analysis of derecognition is not an issue. Loan syndications do not involve any “transfers of financial assets” as each loan in a syndication is between a respective originating bank and the borrower. As a result, there are multiple loans issued by numerous banks to the one borrower. As a result, rather than underwrite the entire loan and look to participate it out to other banks, the lead bank acts as a “syndicate”, matching the borrower up with multiple lenders, each of which underwrites and originates its own loan to the borrower. In a loan syndication, the bank with the “relationship” with the borrower likely does not want to assume the risk of issuing such a large loan. This analysis involves determining if the participating loan represents a “participating interest” under ASC 860 and further whether control over the participating loan has been relinquished by the originating bank. the loan, or a portion of the loan) and must be assessed for derecognition under ASC 860. The unloading of a portion of the loan to participating banks represents a “transfer of a financial asset” (i.e. This transaction will follow the normal accounting for loans under ASC 310. The first transaction is the loan origination to the borrower. In a loan participation, the originating bank enters into several lending arrangements. Under the participation arrangement, the participating banks agree to assume the risks and rewards of a portion of this loan by transferring funds to the originating bank in return for the rights to cash payments for that portion of the loan participated out to the participating bank. Subsequently, or concurrently, with the origination of this loan, the originating bank arranges a participation with other lenders. This is the only loan the borrower enters into. In a loan participation, a bank will originate a loan to a borrower. While both loan participations and syndications involve multiple lenders, the way each is structured results in different accounting issues, including derecognition under ASC 860 and recognition of fees under ASC 606 and/or ASC 310. We often get questions from participants in our classroom Banking Industry Fundamentals training programs and have dedicated time to this subject in our eLearning series available on the Revolution, our online learning platform. Loan participations and loan syndications are terms often interchanged to describe a lending arrangement involving more than one lender however, for accounting and reporting purposes, these are two different types of transactions with unique considerations and issues. ![]()
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