Participations and Syndications – Subtle but Noteworthy Distinctions

by Brad Berman

In the same way that investors employ portfolio diversification in financial transactions to reduce risk, lenders attempt to diversify loan portfolios by lending to borrowers from a number of geographic regions across several market segments.

Prior to the 1950′s, ships were financed predominantly by equity. Owners, quite simply, purchased new vessels with capital or retained profits. By the 1960′s, debt emerged as a significant means for financing ships, however. As lenders took a more active role in ship financing, and the value of ships and their replacement costs increased, it became necessary for lenders to develop a means of funding loans together with others.

With the cost of a new vlcc in excess of US$100 million, many lenders interested in lending to ships in this segment will do so only in concert with others. However, as highlighted in the chart accompanying this article, not all lenders have the same appetite for such combinations.

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