Recourse and non-recourse loans allow lenders to use assets when borrowers fail to meet their obligations and default. Lenders can take possession of all assets used as collateral for these loans. Many loans are taken out with one or more assets of a certain value that the lender can borrow if the borrower does not fulfill its commitment, as described in the loan agreement. Previously, Tencent had increased the size of another syndicated loan to $4.4 billion on June 6, 2016. The loan to finance business acquisitions was signed by five major institutions: Citigroup Inc., Australia and New Zealand Banking Group, Bank of China, HSBC Holdings PLC and Mizuho Financial Group Inc. The five organizations together created a syndicated loan with a five-year facility, split between a long-term loan and a revolver. A revolver is a revolving line of credit, which means that the borrower can repay the balance and borrow again. Frequent short phrases: 1-400, 401-800, 801-1200, plus internal income service. “IRS Courseware: Regress vs. Nonrecourse Debt.” Access on March 10, 2020. Because lenders can reduce the risks associated with loans of recourse, they may charge lower interest rates. Syndicated loans are generated when a project requires a loan that is too large for an individual lender or when a project requires a specialized lender with expertise in a given asset class.
Loan syndication allows lenders to spread the risks and participate in financial opportunities that may be too important for their individual capital base. Interest rates on such loans can be set or variable on the basis of a benchmark rate such as the London Interbank Offer Rate (LIBOR). LIBOR is an average of the interest rates that the world`s major banks lend to each other. The main objective of syndicated loans is to spread the risk of a borrower`s default among several lenders or banks or institutional investors, such as pension funds and hedge funds. Because syndicated loans tend to be much larger than traditional bank loans, the risk of insolvency of a single borrower could cripple a single lender.