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These days some commercial banks have acquired the funds and developed capabilities internally to create universal banks, which can offer multiple types of financial services. The entry of commercial banks into underwriting markets increased the potential of financial institutions to offer lending and underwriting services. Today many financial intermediaries provide loans to firms and also underwrite the firm's public securities.
The concurrent lending and underwriting increased since the 1990s where the movement towards concurrent lending and underwriting raise a host of interesting questions.
Such deals might allow for potential efficiency gains due to informational economies of scope that resulted in banks jointly delivering services and using the same client-specific information for multiple purposes.
Note issuance facilities include the mix of the capital market and syndicated loan operations. It is usually a medium-term, funding instruments with a floating rate, mostly offered for long term position to the investors who have moved their performance for short term due to risks of less developed countries. Concurrent lending and underwriting lower the issuers financing cost by reducing the underwriters' fee for the equity offering and it also discounts yield spread of concurrent loans as compared to comparable non-concurrent loans.
Concurrent lending is an important factor in the selection of an underwriter at the time when the firms and underwriters have not interacted through previous lending transactions and at the time when they do have a prior lending relationship.
It is the arrangement where the borrower can issue short term paper called the Euro notes with the underwriting support from the commercial banks. It includes the revolving underwriting (RUF), Short Term Note issuance (SNIP), Note Purchase Facility (NPF) and transferable revolving underwriting facility (TRUF). Such a document creates legal binging commitments of the underwriting banks to support funding for the given term (like 5 or 10 years).
There are certain rules regarding the interval between the issues. The facility agents arrange to sell the euro note through the agreed placement arrangement. In case, the notes are not sold, the underwriter takes up the unsold portion on a pro-rata basis.
The NIFs are considered attractive to preferential investors like commercial banks, non –banking financial institutions and other types of investors. The underwriters are more attracted to NIF due to low risk and increased return on assets.
NIF carry 3 major cost components like the fee - management fee, pricing, structuring, documentation and syndication and the margin of notes.
TRUF is the term used for Transferable Underwriting Facility where the Euro note facility allows the original underwriter and the project manager to reserve the rights to transfer the commitment to another agent willing to assume financial responsibility. Such a transfer of authority is done with the consent of all the original parties to the facility where it works as a transfer of responsibility and management.
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