Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].
Member question: “We have three joint leader arrangers (JLAs) for our revolving credit facility and the JLA that drives the revolver renewal gets paid more than the others.
- “There are some companies with a lot more than three JLAs. If we were to grow the top tier/JLA group, would the market standard be that they all get paid an arranger fee and, if yes, how would it compare to the lead JLA?
- “Or do some corporates name banks as a JLA but don’t necessarily pay all of them a separate fee?”
Peer answer 1: “For our syndicated credit facilities, the only banks getting paid any extra fees are the five JLAs, one left lead and four passive lead arrangers.
- “The four passive JLAs each get the same fee, which is one-third of the fee for the left lead arranger. All JLAs commit at the lead level, which is sized such that it provides 50% of total commitments.“
Peer answer 2: “I recently asked myself the same thing. We were doing an institutional deal back then, not bank debt. I paid fees to our two JLAs equally (despite only one really doing the work), plus an incentive kicker to the top left JLA for achieving a certain spread reduction and/or OID tightening vs. original pricing talks. Then co-managers had a title only, they did not get any fees.
- “This went down ok with the syndicate, but we had prior context on this transaction. In an upcoming large deal, I will likely go back to giving out small fees to another tier below JLA.”
Peer answer 3: “We pay arranger fees to each JLA. All of them are in the top tier of our facility. The lead left and lead right JLAs get paid more than the others.”
Peer answer 4: “We’ve typically had two active leads (right and left) who get an arrangement fee. We also have a group of JLAs who get a smaller arrangement fee.”
Big picture: For more context and perspective on the question, NeuGroup Insights reached out to the head of a syndicated loan business at a major domestic bank. Here’s his response:
- “In the past, there were a few instances where a bank would commit largely to get the JLA title. They would receive little or no separate JLA compensation but get credit on the league tables as a bookrunner.
- “Recently, however, largely due to capital constraints facing banks across the industry, there has been much more focus on the returns of banks’ loan commitments. As such, JLA compensation is now present in nearly all transactions.
- “When there are multiple JLAs, it is the norm that each of the banks will receive JLA compensation. Though if there are two tiers—which is common in large, syndicated loans for Fortune 100 companies—the second tier receives a slightly lower amount.”
