UNDERSTANDING SYNDICATED LOANS: LEGAL FRAMEWORK AND DEAL STRUCTURES IN NIGERIA

As Nigeria continues its efforts to close infrastructure gaps and expand its energy capacity, the demand for large-scale financing has become increasingly critical. From oil and gas exploration and power generation to road construction and broadband development, the scale of investment required to modernize the country’s infrastructure far exceeds the available public funding. Key sectors such as power, oil and gas, manufacturing, and transportation require massive capital investment to sustain growth and competitiveness, often beyond the lending capacity or risk appetite of a single financial institution.

To bridge this funding gap, syndicated loans have become one of the most significant financing mechanisms for funding high-value projects and large corporate transactions in Nigeria. Behind these transactions lies a sophisticated legal and regulatory framework as well as carefully structured commercial arrangements designed to ensure compliance, transparency, and protection for all participants.

A syndicated loan is a financing arrangement in which group of lenders (often Banks) jointly provide credit to a single borrower under a coordinated structure. The group of lenders form a syndicate to finance the borrower’s funding needs collectively. It is commonly used for large-scale projects or corporate transactions where the amount required is too large or risky to be financed by a single bank, either due to regulatory limits, liquidity constraints, or the need to diversify exposure among multiple lenders. Rather than relying on one financial institution for funding, borrowers gain access to larger pools of capital, while lenders share both the funding obligation and associated credit risks.

Key participants in a syndicated loan structure include a lead bank, typically designated as the Mandated Lead Arranger (MLA) or Lead Arranger, who coordinates the deal, negotiates terms, structures the facility, and invites other lenders to participate (referred to as participating banks), to join the syndicate. Another important participant is the facility agent responsible for managing communication, disbursement of funds, coordinating administrative matters and repayment on behalf of the syndicate. A further critical participant is the security trustee, who holds collateral on behalf of all lenders and for their collective benefit.

The syndicate is led by the MLA who facilitates the entire transaction process on behalf of the borrower, often a special purpose vehicle (SPV) created for the project or in some cases, a direct corporate borrower. The Borrower is responsible for compliance, repayment, and adherence to all agreed covenants as provided in the loan facility agreement. Accordingly, for the lenders, syndication offers diversification of risk and reduced exposure. For the borrower, it provides access to substantial funding at competitive interest rates under a unified credit arrangement. Due to its shared risk structure, and ability to mobilise significant capital, syndicated loans have become a preferred financing mechanism for large-scale infrastructure, energy, and other capital-intensive projects in Nigeria.

Over the past few years, Nigeria has witnessed a steady rise in the use of syndicated loans as a strategic instrument for funding large-scale projects. A notable example is the $3.3 billion syndicated loan secured by Dangote Industries Limited in 2013 for the construction of the Dangote Refinery, led by Standard Chartered Bank and involving a consortium of international and local banks.[1]This transaction remains one of the largest private sector syndicated facilities in Nigeria’s history, underscoring the role of syndicated lending in advancing industrial and infrastructure development.

More recently, the syndicated loan led by Deutsche Bank was secured to finance a section of the Lagos-Calabar Coastal Highway, one of Nigeria’s most ambitious infrastructure projects.[2]In 2024, Bank of Industry also secured a record of €2 billion syndicated loan to support micro, small, and medium enterprises (MSMEs), a transaction coordinated by the Africa Finance Corporation.[3]Similarly in July 2024, the Dutch Entrepreneurial Development Bank (FMO)arranged a $295 million syndicated loan for Access Bank to bolster the Nigerian SME sector.[4]

These transactions often involve both local and international banks, development finance institutions, and investment firms, reflecting the multi-jurisdictional and highly regulated nature of syndicated lending. Given the size, complexity, and cross-border characteristics of most syndicated facilities, each transaction must be structured and executed within a robust legal and regulatory framework that protects all parties and ensures enforceability.

The legal framework governing syndicated loans in Nigeria is anchored on several statutes and regulatory instruments. The Companies and Allied Matters Act (CAMA) 2020, Banks and Other Financial Institutions Act (BOFIA) 2020, Central Bank of Nigeria (CBN) Act 2007, CBN Rules and Guidelines; Secured Transactions in Movable Assets Act (STMA) 2017, Exchange (Monitoring and Miscellaneous Provisions) Act, Stamp Duties Act; Tax laws, and relevant sector-specific regulations.

The Companies and Allied Matters Act (CAMA) 2020 provides the foundation for corporate borrowing and the creation of security interests. Only duly incorporated entities can participate in syndicated loans. Section 222 of CAMA 2020 requires all forms of security, whether fixed or floating charges, to be registered with the Corporate Affairs Commission (CAC) within 90 days of creation. Failure to register may render the security void against third parties and insolvency practitioners, an oversight that could significantly weaken a lender’s position in the event of default. Additionally, CAMA also introduces business rescue mechanisms, allowing distressed companies to restructure debt, which may affect enforcement timelines and recovery strategies for lenders.

The Banks and Other Financial Institutions Act (BOFIA) 2020 regulates banks and financial institutions that participate in syndicated loans. It sets licensing standards and operational limits to ensure prudence and stability in the sector. Section20 prohibits unsecured loans above ₦1million without Central Bank of Nigeria (CBN) approval, reinforcing the requirement for adequate collateralisation. BOFIA also empowers the CBN to impose prudential exposure limits—for instance, the 2014 Revised Guidelines for Finance Companies restrict single-obligor exposure to 20% of shareholders’ funds, and to supervise risk management within the banking system [5].

Where foreign lenders are involved, the CBN’s oversight becomes central. Borrowers must obtain approval and register such loans through an authorised dealer bank. This ensures lawful remittance of interest and repayment through the official foreign exchange market, while protecting lenders’ rights to repatriate funds.

The Stamp Duties Act governs stamp duty obligations on loan documentation. Syndicated loan agreements, whether physical or electronic are subject to stamp duties, which must be remitted to the Nigeria Revenue Services.

The Secured Transactions in Movable Assets Act (STMA) 2017 establishes the National Collateral Registry (NCR), which allows lenders to register security interests over movable assets such as receivables, machinery, and inventory. Registration under the NCR enhances the enforceability and transparency of security interests and determines priority among lenders.

Where loans are denominated in foreign currency, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act provides the legal foundation for compliance with exchange control regulations. It guarantees that foreign loans registered with the CBN can be serviced and repaid through the official FX market.

Finally, sector-specific laws further shape syndicated financing in particular industries. The Petroleum Industry Act (PIA) 2021 governs project financing and the creation of security over petroleum assets, and the Electricity Act, 2023 regulates transactions within the power sector for public-private partnership (PPP)projects.

Syndicated loans are structured based on the types of loan syndication that is chosen, which is mostly influenced by borrower’s creditworthiness, market conditions, project risk profile, and the appetite of participating lenders. The three common loan syndication models include the underwritten deal, best effort syndication, and club deal.

Under the underwritten deal model, the lead arranger undertakes to underwrite the entire loan commitment, assuring the borrower of full funding of the facility.  Once commitment is secured, the arranger proceeds to distribute portions to other lenders who together, form the syndicate. This structure is chosen where the lead arranger has strong confidence in the project’s success and expects high interest form other lenders. However, this model places significant risk on the lead bank because if the syndication is undersubscribed, the arranger are forced to absorb the shortfall. Given the added risk and structure, underwritten syndications are less common among local Nigerian banks and are often used in international transactions involving export-credit agencies or multilateral financial institutions.

Under the best-efforts syndication model, as the name implies, the lead arranger commits to use “best efforts” to source participants to secure the desired loan amount for the borrower, without guaranteeing full funding of the facility. The arranger’s role is primarily to market the loan to potential participants. In this structure, the borrower bears more risk: if there is insufficient interest from lenders, the facility may be partially funded or subject to renegotiation. This approach is common in markets with higher uncertainty or where the borrower’s credit profile may not attract full commitment from lenders.

A club deal otherwise known as consortium loan, involves a smaller group of lenders who agree from the outset to fund the facility on a near-equal basis. Unlike other models, there is often no single dominant arranger; rather, each lender plays an active role in structuring and decision-making. This arrangement is usually for medium-sized loans, domestic transactions and involves lenders with established relationships with the borrower.  

Given the scale, complexity, and multi-part nature of syndicated lending, it follows a structured process that filters through several defined stages, commencing from the initial financing need by the borrower to the final repayment. The first stage is the Mandate and Structuring Stage. The process typically begins when a borrower identifies a significant financing need. The borrower appoints a Mandated Lead Arranger (MLA) or group of arrangers to structure the transaction and coordinate the syndication process. At this stage, the MLA assesses the borrower’s creditworthiness, project viability, and funding requirements. Key commercial terms such as the loan amount, interest rate, repayment period, collateral package, and covenants are discussed and captured in a Mandate Letter. This letter formalizes the arranger’s appointment and outlines fees, confidentiality obligations, and exclusivity terms.

Next stage is the information and underwriting stage, once the broad structure is agreed upon, the arranger prepares an Information Memorandum (IM) or term sheet that provides potential lenders with detailed information about the borrower, the project, and the proposed financing terms. During this stage, lender(s) perform extensive due diligence, reviewing financial information, legal documents, environmental compliance, and project risks to evaluate project feasibility. Legal advisers draft and negotiate key facility documents, including the facility agreement, security documents, and intercreditor agreement.

Then it proceeds to syndicationand documentation stage where there is dissemination of information topotential syndicate members. When the loan terms are finalized, the lead arrangerinitiates the syndication process by formally inviting other financialinstitutions to participate in the syndicate. Interested lenders separately andindependently review the information memorandum before committing and whereinterested execute commitment letters confirming their participation. Legal documentationsare then negotiated and executed between lenders making the syndication legallybinding. Legal documentation in syndicated loan includes the facility agreement- often based on Loan Market Association (LMA) standards, sets out thefinancial terms, interest rates mechanisms, repayment schedules, borrowerobligations, and default procedures. Supporting documents such as security trustdeeds, guarantees which establish collateral arrangements, intercreditor agreementand fee letters (which define the remuneration structure for arrangers andagents) are executed simultaneously.

Following execution of the transaction documents, the borrower in conjunction with its legal advisers proceeds to satisfy all agreed conditions precedent. Upon fulfilment of the condition’s precedent, the facility becomes effective and the transaction moves to the drawdown and loan administration stage. At this stage, funds are disbursed to the borrower in one or more tranches as agreed in the definitive agreement. The lead arranger takes supervisory role in the implementation, and the facility agent manages communication between the borrower and lenders, administers repayments, monitors compliance with covenants, and handles waiver or amendment requests.

The final stage is the repayment, monitoring, and enforcement stage. In accordance with the terms of the agreement as to when repayment of principal and interest are to be made, the borrower makes periodic interest and principal payments according to the agreed repayment schedule. Lenders monitor the borrower’s financial performance and covenant compliance through periodic reporting obligations. In the event of default, the security trustee acts on behalf of all lenders to enforce collateral or restructure the loan. Enforcement procedures are governed by the facility agreement and the intercreditor agreement to ensure collective action and fairness among the syndicate members.

At the core of every syndicated loan transaction lies a web of legal and commercial issues that must be properly addressed to ensure the deal operates smoothly and remains enforceable. Because many syndicated loans involve both domestic and international financial institutions, one of the foremost questions is which legal system governs the transaction. Determining the applicable law and jurisdiction is critical for enforcing rights and resolving disputes.

Most cross-border syndicated loans involving Nigerian borrowers adopt English law as the governing law for the facility agreement, owing to its well-developed jurisprudence and predictability in commercial matters. However, Nigerian law typically governs security documents over local assets, ensuring compliance with domestic registration and perfection requirements. This dual-law structure provides comfort to foreign lenders while maintaining local legal validity.

Another key issue concerns the relationship among syndicate members. Each lender commits to provide a specified portion of the total loan. But what happens if one lender fails to fund its share, perhaps due to insolvency or liquidity constraints? To manage such risk, the facility agreement must include clear provisions addressing lender default or non-participation. Often, the agreement will empower the MLA or facility agent to reallocate the unfunded portion among the remaining lenders or allow new lenders to step in. These clauses prevent funding shortfalls from derailing the entire transaction.

Because syndicated loans often span several years, lenders require ongoing assurance about the borrower’s financial health. Security interests such as charges over assets, receivables, or project revenues offer protection, but they are not always sufficient. The true value of security can diminish if enforcement becomes necessary or if assets depreciate. Consequently, lenders rely on financial covenants to monitor and control the borrower’s conduct throughout the loan period.

Typical covenants may include, financial maintenance covenants, such as debt service coverage or leverage ratios; negative pledge clauses, restricting the borrower from granting similar security to other creditors; and disposal and merger restrictions, preventing asset sales or corporate restructuring without lender consent. These provisions give lenders confidence that the borrower will maintain financial discipline without unduly constraining its ability to operate. Striking that balance is often the hallmark of effective loan documentation.

Another important consideration is loan transferability and participation. Syndicated loans can last for five to ten years or more, and not all lenders wish to maintain their exposure for that long. The facility agreement therefore provides mechanisms for loan assignment, novation, or sub-participation, allowing lenders to sell or transfer part of their interest to other financial institutions.

In sub-participation, a lender (the “grantor”) enters into a separate arrangement with another institution (the “participant”), passing on the economic benefits and risks of its loan exposure without formally transferring its rights under the facility agreement. This creates a secondary market for syndicated loans, promoting liquidity and enabling banks to manage their balance sheets more efficiently.

Other issues that often arise include tax implications, foreign exchange controls, and enforcement mechanisms in the event of default. For example, repayment of offshore syndicated loans must comply with CBN foreign exchange rules, and interest or fees paid to foreign lenders may attract withholding tax unless exempted under double taxation treaties.

Ultimately, every syndicated loan must be carefully structured to anticipate these challenges. Well-drafted documentation, clear allocation of rights and obligations, and proactive risk management ensure that the transaction remains bankable, enforceable, and resilient to economic shifts.

At SHQ Legal, we advise banks, financial institutions, project sponsors, and investors on the structuring, negotiation, and documentation of loan transactions across Nigeria’s energy, infrastructure, and corporate sectors. Our role is to ensure legal clarity, regulatory compliance, and effective risk management at every stage of the financing process, enabling our clients to execute transactions with confidence and achieve sustainable commercial outcomes.

References

[1] Euro pet role “Dangote signs USD3.3bn loan agreement for a new refinery in Nigeria” < https://www.euro-petrole.com/dangote-signs-usd3-3bn-loan-agreement-for-a-new-refinery-in-nigeria-n-i-8234> accessed 13November, 2025.

[2] Federal Ministry of Finance “Landmark $747 Million Syndicated Loan for Phase 1 Section1 of the Lagos-Calabar Coastal Highway < https://finance.gov.ng/landmark-747-million-syndicated-loan-for-phase-1-section-1-of-the-lagos-calabar-coastal-highway/#:~:text=Calabar%20Coastal%20Highway-,Landmark%20$747%20Million%20Syndicated%20Loan%20for%20Phase%201%20Section%201,and%20growing%20support%20for%20Nigeria.>accessed 13 November, 2025.

[3] Africa Finance Corporation “AFC leads up to 2 Billion Syndicated Facility in Largest-Ever Global Loan Syndication for Bank of Industry” < https://www.africafc.org/news-and-insights/news/afc-leads-up-to-2-billion-syndicated-facility-in-largest-ever-global-loan-syndication-for-bank-of-industry>accessed November 13, 2025.

[4] Ogochukwu Ndubuisi “Access Bank Raises $295 Million Via FMO Syndicate Facility” <https://dmarketforces.com/access-bank-raises-295-million-via-fmo-syndicate-facility/#google_vignette> accessed November 13, 2025.

[5] Central Bank of Nigeria Revised Guidelines for Finance Companies in Nigeria, April 2014.

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