An arrangement in which several banks jointly lend to one borrower under a common agreement, with a designated lead bank arranging the facility and coordinating the members.
How it works
The lead bank — typically the one with the largest share — appraises the proposal, arranges the participation of the other members, and coordinates documentation, security creation and periodic review. Members share the exposure in agreed proportions and, generally, share the security on a pari passu basis under a common set of terms.
The practical consequences are that the borrower deals with one primary point of contact for the facility, security is created once rather than bank by bank, and the members have a formal channel through which to see one another’s position on the account.
How it differs from multiple banking
Multiple banking is the alternative arrangement: several banks lending to the same borrower under separate bilateral agreements, each independently appraised, each with its own security and its own terms, and with no common forum. The two are frequently confused because the outcome — several banks on one borrower — looks the same from outside.
The difference matters for risk. In a consortium the members have a structural mechanism for coordination. In multiple banking they may have no visibility of one another at all beyond what is reported centrally.
How it appears in a rating document
A rating press release will often state, in the facilities section or the liquidity paragraph, whether the borrower’s working capital limits are under a consortium and which bank leads it. The lender-wise annexure then names the participating banks with their facility types and sanctioned amounts.
A caution when reading one: an annexure lists the lenders named on the rated facilities. It does not, by itself, tell you whether they form a consortium. Where the document states the arrangement, use that; where it does not, do not infer a consortium from co-appearance on an annexure.
Related
- Multiple banking — the alternative arrangement, and the one it is confused with
- Lender-wise annexure — where the participating banks are named
- Large exposures framework — why large borrowers are spread across lenders
- How to read a rating press release
- Glossary index