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The difference between a “Club Deal” and syndication

The difference between a “Club Deal” and syndication

A syndicate is a temporary professional financial services group formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually.

Compared with the definition of a “Club Deal”, an alternative mode of investment gathering a number of qualified investors to pool their capital together and invest collectively, we can see that the two terms are very similar. Similar investment pattern with similar purposes. In fact, the two terms can usually replace each other as synonyms.    

However, in the precise case of the bank lending activity, there is indeed a difference between a syndicated loan and a “Club Deal” loan. “Syndicated loan” is a general term meaning several banks issue a loan together to a single borrower with one bank acting as the “arranger” or “lead lender” followed by other members of the consortium. It should be noted that a club deal syndicated loan is often a smaller amount loan ($25 – $150 million) that is pre-marketed to a group of relationship lenders in which the main feature is that the lead agent and other members of a club deal consortium all share equal, or nearly equal, parts of the fees earned from the loan facility.     Here, we can find a trace of the exclusivity of a club deal. This can be traced back to the origin of club deals: deals were made among members at the country club who already have relationships established before among one another.

Originally, Club Deals were made among members at the country club

With exclusivity and familiarity, club members execute at a greater speed and ease.

This can explain why a syndicated loan involving a broad spectrum of lenders typically takes at least 45 days to wrap up and a “Club Deal” loan is usually done within one month. Sometimes borrower makes a quick call to a handful of core relationship banks and can get things arranged.     If we are to generalize the difference between syndicated loan and “Club Deal” loan, we can conclude that one difference, if not the only one, between “Club Deal” and syndication is that a “Club Deal” is more exclusive than a syndication, and integrates a sense of closed business familiarity between members, which helps cement the deal flow. For this, a syndicate is temporarily formed and a club is likely to exist for a longer period, or lifelong period, because it is usually backed by previously established lasting relationship among trusted members.

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