3.2.1 Products for Borrower Tranches and Drawdowns

At the second level, for the borrower tranche contracts under a main borrower facility contract, you need to define a commitment type of product for the borrowing customer.

The commitment contract for the borrower at tranche level is processed in the same manner as a normal commitment contract in Oracle Banking Corporate Lending In addition, for the actual borrower drawdowns in a borrower tranche under a borrower facility contract, you would need to define a loan type of product for a loan advanced to the borrowing customer (drawdown)

The loan contract at drawdown level for the borrowing customer is processed in the same manner as normal loans in Oracle Banking Corporate Lending. The process in which the loan is disbursed (or the borrowing customer avails the loan principal) under a borrower facility contract depends upon many factors. The most important factor is the nature of the requirement of the borrowing customer. The other factor is the identification of the participants who would share the load of funding the borrowing.

Under a syndication contract, the borrower may need to avail the loan principal in many tranches. Under each tranche, the borrower may avail the total tranche amount through a specified number of drawdown loans.

The deployment of the total syndication amount in as many tranches is done according to the requirement of the borrower. Similarly, the deployment of the tranche amount, in a specified number of drawdown loans is also decided by the requirement of the borrower. Each tranche amount as well as each drawdown loan may have different processing attributes with regard to components such as interest, fees, tax applicable and so on, and these attributes would be arranged to suit the borrower’s requirement.

Accordingly, you will need to define borrower tranche products with specific attributes to process borrower tranche contracts with specific requirements. Similarly, you will need to define borrower drawdown products with specific attributes to process borrower drawdown loans with specific requirements. Consider the example given below:

Example

• Facility Product

  One of your customers, Mrs. Catherine Crenshaw, has approached you for a loan of 100000 USD and entered into a syndication contract with your bank. The agreement is booked on 1^st June 2000, and the end date, by which all components of the borrowed amount will be repaid, to be 1^st June 2001.

  For the purpose of processing the syndication contract, you can create a facility product. Let us assume you have created a facility product SYN1 for this purpose, and you have entered the agreement as a contract under it.
• Tranche Products
  Mrs. Crenshaw proposes to avail the total loan principal in the following manner:

  • Total syndicated loan principal: 100000 USD, in two tranches, with a total tenor of six months.
  • Portion of loan desired in the first tranche: 50000 USD.
  • Portion of loan desired in the next tranche: 50000 USD

  To meet the borrowing requirement of the first tranche, your bank has identified the Far East Bank of Commerce and Gold Crest Bank to create a pool of funds to disburse the tranche amount. This arrangement forms the first tranche under the syndication contract.
  You need to define products for the tranche contracts of the borrower, and commitments for the two participants. You need to define products with the specific attributes required for each tranche.
  For instance, for the tranches, you would need to create products for the tranche contracts. You could create the following products:

  • BSFT, for tranche borrower commitment contracts.
  • PSFT, for tranche borrowing line participant contracts. These products could have similar attributes as the product BSFT

  To meet the borrowing requirement of the second tranche, your bank has again approached the Far East Bank of Commerce and Gold Crest Bank to create a pool of funds to disburse the tranche amount. This arrangement forms the second tranche under the syndication contract.
• Drawdown Products

  Let us suppose that Mrs. Crenshaw proposes to avail the actual drawdown loans from each tranche in the following pattern:

  Tranche One

  • 15000 USD on 30^th June
  • 20000 USD on 31^st July
  • 15000 USD on 31^st August
  Tranche Two

  • 20000 USD on 30^th September
  • 20000 USD on 31^st October
  • 1000 USD on 30^th November
  You need to define products for the drawdown loan contracts of the borrower and the participants of the tranche, and deposit contracts for the two participants. You need to define products with the specific attributes required for each drawdown loan.
  For instance, for drawdown loans under the tranches, you would need to create the following products:

  • BDFT, for drawdown borrower loan contracts.
  • PDFT, for drawdown participant deposit contracts. These products can have similar attributes as BDFT

  This pattern of product definition enables your bank to process the different types of contracts under the facility contract with Mrs. Crenshaw.