4 Ways Blockchain Technology Simplifies Syndicated Loans

How blockchain solves for specific challenges in the syndicated loans market.

Every year, global capital markets handle billions of dollars in syndicated loans. The large size of these loans requires the involvement of many banks and financial entities, resulting in increased liability and cost from manual stakeholder coordination. Blockchain-enabled digitization and standardization provides solutions unique to the problems faced by the syndicated loans market.

Streamlined Issuance, Servicing, and Administration for Agent Banks

The Problem

Execution and administration of syndicated loans is inefficient and costly, relying on a number of intermediaries, bespoke proprietary solutions, and legacy systems. Most deals are spearheaded by lead agent banks, which bear the liability of KYC, record management, servicing, and payments for lenders and secondary agents. Considerable manpower is required to ensure documentation work is performed correctly, taking time and increasing the risk for human error.

The Solution

Digital standardization on Codefi Assets across lead agents, lenders, and secondary agents can drastically reduce the risk and manual efforts required to facilitate crucial components of a syndicated loan deal such as KYC, record and document management, servicing, and payments. A blockchain-based digital solution enables data integrity and consistency, security, and reduced cost.

Automated Amendment Voting

The Problem

Voting to amend the details of a syndicated loan deal requires the manual tracking and recording of stakeholder votes to arrive at a final decision. Once a vote is passed, documents must then be manually updated with new terms to ensure consistency across all syndicates.

The Solution

Codefi Assets addresses two primary problems with syndicated loans voting by automating both the collection of votes and the editing of documentation. Amendment votes can be collected remotely and verified to confirm veracity without considerable manual time. Moreover, the results of a vote can set into motion a series of smart contracts that execute the affected terms of a syndicated loan, with the added benefit of an immutable time-stamp that can be viewed and verified by all parties.

Enhanced Document Management and Security

The Problem

In any industry involving the participation of many stakeholders, document management is a persistent problem. Many identical and near-identical copies of documents exist across stakeholders, and the verification of the “truth” requires collaborative trust and consensus that can break down in larger or higher-stakes transactions. Data reconciliation requires considerable time and effort, and can often require the expensive involvement of lawyers and other third parties.

The Solution

Codefi Assets’ document management system enables stakeholders to be assured of the latest version of a document as well as the immutable history of past versions. Its “single source of truth” solution reduces the time and cost of data reconciliation across stakeholders, and decreases reliance on lawyers or third parties.

Near Real-Time Clearing and Settlement

The Problem

In the existing syndicated loans market, settlement times can reach more than 20 days, creating considerable risk and exposure for the entities that comprise a loan syndicate. These entities must consequently shoulder the risk and associated liability cost of the gap between delivery and payment. Industry-wide, the result is increased fees and reduced profitability.

The Solution

Syndicated loans solutions built on top of blockchain technology enable near real-time settlement, effectively eliminating the inefficiencies, risk, and cost associated with long settlement times in today’s industry. ConsenSys Codefi enables these settlement solutions through secure digitization and tokenization of assets, accelerating the transfer of funds and thus optimizing the settlement of syndicated loans.

ConsenSys Codefi: The Complete Blockchain Platform for Digital Asset Management

Codefi allows asset managers to create, issue, and manage the lifecycle of digital assets, associated markets, and digital financial instruments on permissioned blockchain networks. The platform enables users to:

• Create financial products that are not currently securitized, including accounts payable, invoices, and supplier service contracts. Build on the connectivity between fully digitized assets to form new financial products and services.
• Better meet investor demands and improve liquidity potential by restructuring slow settling financial products, and customizing asset issuance directly for investor specifications.
• Access global markets, broaden your investor base, and amass more diversified assets under management with international distribution capabilities.
• Achieve optimal operational efficiency and reduce costs with automated processes, and a distributed and mutualized market infrastructure.

Ready to integrate blockchain into your asset management stack?

Request a demo of Codefi Assets today.

Originally published at https://consensys.net.