Benefits for Banks
CFSD believes that competitive bank financing is available through regional and local banking syndicates. The relationships established in such financings can play an important role to the back-up facilities provided by the global money center banks.
The benefits to participating banks include:
- Gaining an attractive addition to existing client rosters
- Recognition both locally and beyond from being part of the utility system’s financing team
- Supportive of local and regional community development and jobs creation.
- Diversification of lending sources viewed positively by credit rating agencies
CFSD further believes that the regulatory environment will continue to favor increased financing from local and regional banks, as opposed to the “too big to fail” money center banks. Beginning in 2015, key provisions of the Basel 3 accords will require that unused commitments of banks participating in the LIBOR market must be backed by “Tier 1” capital. This requirement may have the effect of decreasing the funds that money center banks may loan, which may, in turn, drive up LIBOR rates.
As LIBOR rates increase, the non-LIBOR based interest rates upon which local and regional banks typically lend will likely become increasingly competitive with LIBOR-based lending. As the interest rate gap between LIBOR and non-Libor rates narrows, local and regional banks will be in a stronger position to compete as primary or complementary sources of funding along with the money center banks.
Because of the large amounts often taken in utility financings, local and regional banks would tend to receive substantial revenue on single loans, as well as further revenue from the re-lending of utility interest proceeds. As local and regional banks become involved in these lending opportunities, CFSD believes that additional syndication opportunities are likely to follow.
Bank Benefits Recap:
- A strengthened loan portfolio resulting from the higher-than-average credit ratings of utilities allowing the banks to loan more of their resources to local businesses.
- Increased credibility and recognition resulting from participating in major company loan syndication.
- Opportunities for participation in subsequent utility and non-utility syndications.
- Community goodwill resulting from publicizing job creation and subsequent lending made possible through utility syndication participation.