Upfront fees are the one-off fees paid by borrowers to mandated lead arrangers on the total commitment amount for arranging and originating the financing, structuring the syndicate, and marketing and distributing the syndicated facilities, commonly payable upon syndication closing.  These fees compensate for loan syndication cost and syndication risk at loan initiation.

Upfront fees comprise the arrangement fee, the underwriting fee, and the closing fees:

  • Arrangement fee – An upfront fee paid by a borrower to lead arrangers for originating the financing, structuring the syndicate and distributing the financing facility, charged at the execution (signing) of the facility agreement and payable in one lump sum, either on the closing date or upon the first drawdown;
  • Underwriting fee – Lead arranger compensation for the credit risk exposure incurred for guaranteeing to the borrower the availability of funds and the syndication risk exposure assumed in syndicate structuring and distribution for the initial underwriting of syndicated facilities; and
  • Closing fee – Compensation received by participant lenders in general syndication from underwriters and paid on final allocations for lender due diligence and credit approval, it being set by the syndicate bookrunner for each tier (ticket size) and announced at the bank meeting that is held to address questions about the deal and establish a timetable for commitments and syndication closing.

“Participants” (small banks, institutions, CDOs, hedge funds) usually do not receive any of the underwriting spread or closing fee, instead they earn only a margin over their cost of funds.

Generally, project finance deals have higher closing fees than other loan types because they require more credit analysis and involve riskier positions.

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