Legal: The Netflix Syndicated ‘Lion Heart’, Syndicated Loans and other Syndicated Stories

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The Netflix Syndicated Lionheart movie, co-produced by Chinny Onwugbenu and Veteran Actress, Genevieve Nnaji was released to its movie viewing platform on the 4th of January 2018, leaving the millennial Nigeria abuzz on the rise of the Nigerian Film Industry.

OVERVIEW

A young lady, Adaeze (played by Genevieve Nnaji) is forced to take over her father’s transport company after he has health issues. With the help of her uncle (Nkem Owoh) , while grappling with  subtle office politicking in the background, Adaeze is confronted with a hefty loan that falls due in about 30 days. Her Uncle suggests a merger, while Ada attempts different means to forestall default of the syndicated loan her father about to fall due, but ultimately realises the merger is the only choice. Lined with humour, igbo banter and an interestingly cinematic experience, this story chronicles the highs and lows of Adaeze’s journey to keeping her father’s company stable.

Lionheart subtly examines themes like feminism and the problematic positioning/struggles of Nigerian women in the corporate world amidst office politics, a quest for true Nigerian unity, societal and family values,  the state of the Nigerian police force and so forth. 

With great costume, music and cinematography, the movie paces itself, showing the rich Nigerian heritage and the uniqueness of a Nigerian story.

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LEGAL ASPECTS

The interesting corporate story provides a befitting opportunity to talk about the different players in a syndicated loan agreement. Adaeze’s father must have entered into a syndicated loan agreement to have been able to obtain money for the 96 buses he purchased, which were to fall due in 30 days, as specified in the movie.

Usually when a borrower obtains a loan from different banks to finance the purchase of buses, it would most likely be in a standard agreement, called a syndicated loan agreement. In that kind of agreement, the borrower does not negotiate with individual banks on the date the loan becomes payable. This is because in a syndicated loan, the banks come together to share the risk of payment default, so negotiating with individual banks on when each loan becomes payable might interfere with that.

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Generally, a borrower obtains a loan from a syndicate of banks where the money needed is too much to be provided by one bank; hence the syndicate. Borrowers get into syndicated loans to minimise their cost of borrowing, while originating banks get into syndicated loans to make more profit and guarantee participating lenders a reduced costs of providing the loan facility.

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THE BORROWER

The Borrower typically gives a mandate to the arranging bank, stating the proposed financial terms, which would contain the amount, the interest margin, the repayment term, fees, events of default etc. This document is subject to the negotiation of an actual credit agreement between the parties, as well as other terms, like no material adverse change occurring, the borrower not entering into another syndication with another set of banks, etc. The borrower could be an individual, a company or a country. In this movie, the Borrower was Adaeze’s dad, played by Pete Edochie.

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THE LEAD/ARRANGER BANK

The lead/arranger bank usually performs the investment banking role. It prepares an information memorandum about the borrower, setting out the terms of the loan for dispatch to potential bank participants to solicit their interest. It also negotiates loan documentation.  The arranging bank functions as the administrator of the credit facility. The individual banks do not give the borrower the loan themselves, neither can they negotiate different dates that a borrower can repay the loan to each bank. There is usually a standard loan agreement that applies to all banks. 

The originating bank could also be  the underwriter, which provides additional advantage to other banks, thus taking more risk for itself. Consequently, the borrower’s mandate may allow the arrangers revise the pricing of the loan.  According to W. Wild, loan syndication reduces the rates of credit loss provision, capital charge and opportunity cost for the loan originator. It is also a means of avoiding the constraints of bank credit exposure limits.

PARTICIPATING BANKS 

These could be banks or even other financial institutions, so long as they have legal authorisation, can receive payments, etc.  These could include institutional funds and hedge funds. 

References: 

  1. W. Wild, The Economic Basis of Syndicated Lending https://eprints.qut.edu.au/16114/1/William_Wild_Thesis.pdf
  2. A. Mcknight, The Law of International Finance
  3. P. Wood, Law and Practice of International Finance
  4. Investopedia, Syndicated Loan, https://www.investopedia.com/terms/s/syndicatedloan.asp

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