Page "Syndicated loan" Paragraph 6

As a result of market flex, loan syndication functions as a book-building exercise, in bond-market parlance.

A loan is originally launched to market at a target spread or, as was increasingly common by 2008 with a range of spreads referred to as price talk ( i. e., a target spread of, say, LIBOR + 250 to LIBOR + 275 ).

Investors then will make commitments that in many cases are tiered by the spread.

For example, an account may put in for $ 25 million at LIBOR + 275 or $ 15 million at LIBOR + 250.

At the end of the process, the arranger will total up the commitments and then make a call on where to price the paper.

Following the example above, if the paper is vastly oversubscribed at LIBOR + 250, the arranger may slice the spread further.

Conversely, if it is undersubscribed even at LIBOR + 275, then the arranger will be forced to raise the spread to bring more money to the table.