abhishreshthaa
Abhijeet S
Euro Credit Market
Euro credit or Euro Loans are the loans extended for one year or longer. The market that deals in such loans is called Euro Credit Market.
The common maturity for euro credit loans is 5 years. Since Euro banks accept short-term deposits and provide long-term loans, it is likely that asset liability mismatch may arise.
To avoid this Euro banks often extend floating rate euro credit loans fixed to some market interest rate. The London Inter Bank Offer Rate (LIBOR) is the most commonly used interest rate. It is the rate charged for loans between Euro Banks.
Participants in Euro credit Market
The major lending banks in the Euro credit market are
Euro banks, American, Japanese, British, Swiss, French, German and Asian
(specially that of Singapore) banks, Chemical Bank, JP Morgan, Citicorp,
Bankers Trust, Chase Manhattan Bank, First National Bank of Chicago,
Barclay's Bank, National Westminster, BNP, etc. Among the borrowers, there are banks, multinational groups, public utilities, government agencies, local authorities, etc.
Dealing in Euro credits
When a borrower approaches a bank for Euro credit, a formal document is prepared on behalf of potential borrowers.
This document contains the principal terms and conditions of loan, objectivaes of loan and details of the borrower.
Before launching syndication, the approached bank decides primarily, in consultation with the borrower, on a strategy to be adopted, i.e. whether to approach a large market or a restricted number of banks to form the syndicate.
Each of the banks in syndicate lends a part of the loan. The duration of this operation is normally about 6 to 8 weeks.
Several clauses may be introduced in the contract of Euro-debt:
• Pari-passu clause that prevents the borrower from contracting new debts that subordinate the interest of lenders;
• Exchange option clause that allows the withdrawal of a part or totality of loan in another currency;
• Negative guarantee clause that commits the borrower not to contract other debts that subordinate the interest of lenders.