Description

Consists of a loan extended by a group of financial institutions (a loan syndicate) to a single borrower. The syndicates often include banks and non-bank financial institutions, such as collateralized loan obligation structures (CLOs), insurance companies, pension funds, or mutual funds.

Instrument category

Debt financing

Implementation status

High - much evidence available

Enabling conditions and success factors

• A diversity of debt providers is needed.
• Strong regulatory environment.

Instrument benefits

• Efficiency in that the borrower doesn’t need to meet all the different requirements of different lenders.
• Allows for a large amount of lending.
• Reduces the risk in case of default compared to having a single lender.

Challenges and risks to implementation

• Usually requires collateral.
• There can be limited understanding of green investments from the side of banks, especially exacerbated by the low creditworthiness of some municipalities, therefore leading to reluctance to appraise projects, or high perceived risk, which in turn increases the cost of capital.
• Difficulty in agreeing on syndicate terms.