Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan

1142 Words Aug 15th, 2012 5 Pages
1. Chase should have bid for the loan mandate in such a way to maximize the investment fee income after controlling for risks involved, and the client’s preferences for syndicated loan. Thus. Chase faced a trade off between Risks and rewards. We have to weigh out the risks with rewards as below

Risks Involved
• Credit and Downgrade risk – This arises from the level of exposure that Chase would take in the HK$3.3 billion loan. Usually they put a limit of 10%. Thus Chase had to bid in such a way to have greater co-operation from syndicating partners so as to reduce the resulting loan exposure by way of spreading the risk with other players
• Underwriting risk – The risk that the issue may be undersubscribed leading to Chase taking up
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From Chase´s point of view, it would be positive to include detailed information about specific issues that might lead or not to the use of trigger of the market flex clause. This measure would make Chase even more trustful for borrowers concerned about the “market flex terms”.

3. We would recommend a syndication strategy that maximizes Chase share of management fees after taking care of their acceptable level of credit and underwriting risk, and also the concern for Disney to have more than one lender.
• In setting the fees the target range was 100bps to 150 bps and we would recommend the mid-point 125 bps.
• To manage credit Chase should get as much commitments from sub-underwriters so that their resulting commitment (Chase) would be less than 10% of the deal (HK330 million)
• For smooth flowing of the deal, Chase must ensure that at least 60% of the commitments are in the hands of fewer senior sub-underwriters.
• Each invited bank should end up with fees of at least US$50,000

We find that Chase did not come up with an optimal syndication strategy in that they ended up committing at least HK417 million (14%) of the loan which was above their required limit of 10%, although they had been granted approval. This strategy however resulted in higher fees of HK$14.379 million.
Using an optimizing model, we have reached a recommendation that the optimal strategy was for a

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