Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan

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1. Chase should have bid for the loan mandate in such a way to maximize the investment fee income after controlling for risks involved, and the client’s preferences for syndicated loan. Thus. Chase faced a trade off between Risks and rewards. We have to weigh out the risks with rewards as below

Risks Involved
• Credit and Downgrade risk – This arises from the level of exposure that Chase would take in the HK$3.3 billion loan. Usually they put a limit of 10%. Thus Chase had to bid in such a way to have greater co-operation from syndicating partners so as to reduce the resulting loan exposure by way of spreading the risk with other players
Underwriting risk – The risk that the issue may be undersubscribed leading to Chase taking up
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Thus a competitive but less profitable bid could result in more profitable bid in future
• The market-flex clause effectively reduces Chase’s underwriting risk and gives them room to reduce underwriting fees and be competitive.

Thus, Chase must bid to win, and set a competitive underwriting fee and an option to syndicate for the risk and rewards discussed above.

2. We would recommend Disney to sign Chase´s “standard” commitment letter because, by doing so,
• Disney would increase the probability of a successful closure of the project. If the situation changes adversely for Chase, the bank has the possibility of renegotiating some aspects of the contract instead of pulling-out and ruin the execution of the project.
• This also gives Disney the power to negotiate for a lower underwriting fees

However, Disney might be concerned because
• The “market flex” terms which give Chase the possibility of changing the contract without the borrower´s consent. In the clause is written that changes would be done after “consultation” with Disney but this term could be confusing.
• Moreover, the “standard” contract is vague in conditions under which Chase would apply triggering clauses.
• Another concern for Disney should be the fact that if the company sign the market flex terms, Chase would be over-charging underwriting fees which aim is usually to cover
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