Who pays the agency fee in a syndicated loan?

The borrower. It is usually a fixed yearly amount set in a fee letter between the borrower and the agent, paid in advance and kept by the agent rather than shared with the other lenders. Because it sits in a separate letter, it does not appear in the facility agreement, and lenders who are not the agent may not know the figure. Extra work, such as an amendment or a restructuring, may carry further fees under the same letter.

Is the agent bank responsible to the other lenders for the borrower's credit?

Generally not. Loan-market agreements commonly describe the agent's role as mechanical and administrative, relieve it of any duty to check what it passes on, and record that each lender made its own credit appraisal. The agent must still do what the agreement requires, and where it has a discretion, English courts have expected it to act in good faith. Assessing the borrower remains each lender's job, including the agent bank's own credit team in its capacity as lender.

Can the agent bank resign or be replaced?

Usually yes. Agreements commonly let the agent resign on notice and let the majority lenders appoint a successor, often after consulting the borrower or with its consent where no default is continuing. Many also let the majority lenders replace an agent. Resignations tend to follow a change in the agent's strategy, a sale of its share, or a workload the fee no longer covers, which is why they cluster around restructurings.

What is the difference between a facility agent and a security agent?

The facility agent administers the loan: money, notices, rates and votes. The security agent, or security trustee, holds the security on behalf of all the lenders and enforces it on their instructions, so a lender can sell its share without the security being retaken. One bank often does both, under separate appointments and sometimes for separate fees, but the duties differ: the security trustee holds property for others, which the facility agent does not.

// WORKED EXAMPLEHOW THE ROLE WORKS

Agency Fee: What the Agent Bank Does for It

One bank keeps the books, and the borrower pays it for the work.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

An agency fee is the price of having one bank stand between a borrower and a group of lenders. Without an agent, a business with three lenders would send three drawdown notices, make three interest payments and ask three credit departments separately for every waiver. The agent turns that into one counterparty: it receives and passes on money and notices, keeps the record of who is owed what, and counts the votes. What the borrower pays for that convenience is modest and fixed, set before signing and owed every year the loan runs. It buys administration, not judgment: each lender still makes its own credit decision.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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// 01 — WHY A SHARED LOAN NEEDS ONE ADMINISTRATOR

A syndicated loan or a club facility is one agreement with several lenders, each committing its own share. The lenders want to be treated alike: paid at the same moment, in proportion to their shares, on the same information. The borrower wants one place to send a request and one account to pay into. The agent provides both. It is usually one of the lenders, often the bank that arranged the deal, acting in a separate capacity, though some deals appoint an independent agency firm instead.

The agent is not the arranger. The arranger is paid once, at signing, for structuring the loan and finding the lenders. The agent is paid every year the loan is outstanding, for running it. One bank can hold both titles and take both fees, but they pay for different work.

// 02 — WHAT THE AGENT DOES, AND WHAT IT DOES NOT

The work recurs through the life of the loan. On a drawdown, the agent receives the borrower's request, tells each lender its share, collects the funds and pays them over. On each interest date it sets the rate, calculates what is due, collects it and passes each lender its part. It circulates the accounts and compliance certificates the borrower delivers. When the borrower asks for a waiver or an amendment, it sends the request round, counts the replies against the voting thresholds in the agreement and tells everyone the result. When a lender sells its share, the agent records the transfer.

The fee for this is commonly set in a separate fee letter between the borrower and the agent, payable yearly in advance and kept for the agent's own account, so the other lenders may not see the amount. Fee letters sometimes add charges for extra work, such as an amendment or a restructuring. A security trustee that holds the security for the lenders may charge its own fee.

What the agent does not do is assess the borrower for the others. Agreements on loan-market forms commonly describe its duties as mechanical and administrative, say it need not check the information it passes on, and have each lender confirm that it made its own credit appraisal. They also commonly have the lenders indemnify the agent, in proportion to their shares, for costs the borrower does not meet. An English court in 2013 read an agent's duties under such documents narrowly: it declined to imply a duty to pass on everything the agent received, or to report a default the agent had not recognised as one, beyond what the agreement stated.

// 03 — THE EXAMPLE

A brewer, constructed for this page, refinances with a US$90m club: a US$60m term loan and a US$30m revolver. Lender A holds 50%, lender B 30% and lender C 20%. Lender A is also the agent, for a fee of US$30,000 a year paid in advance; the arrangement fee was paid once, at signing. The figures are the example's, not a market rate.

In March the brewer draws US$10m on the revolver. The agent asks each lender for its share and pays the total to the brewer on the same day. At the end of the first quarter it calculates interest on the term loan at a base rate of 4.00% plus a 2.25% margin, simplified here to a quarter of a year, collects it and splits it:

Revolver drawing 10.0m: A 5.0m B 3.0m C 2.0m

Term loan interest: 60,000,000 × 6.25% × 0.25 = 937,500

Paid on to lenders: A 468,750 B 281,250 C 187,500

In August the compliance certificate shows leverage at 3.1 times against a covenant of 3.0 times. The agent circulates it and, a week later, the brewer's request for a waiver. This agreement defines majority lenders as those holding more than two-thirds of the commitments:

Lender A (50%) agrees, lender C (20%) agrees: 70% > 66⅔% → waiver granted

Had only lender A agreed: 50% < 66⅔% → waiver refused

Lender A votes as a lender, through its own credit process, not as agent. The agent's part is to count the replies and notify the result. None of it involved judging whether the waiver was wise.

// 04 — HOW IT DIFFERS FROM THE OTHER FEES ON THE LOAN

The arrangement fee is paid once and is often shared with the lenders that join, as participation fees. The agency fee recurs and stays with the agent. A waiver fee, where one is charged, is often paid to the lenders that consent, not the agent. The margin and the commitment fee go to all the lenders in proportion to their shares.

In a bilateral facility there is no agent and no agency fee: the one lender administers its own loan. That saving is small beside the margin, and it is rarely why a borrower chooses one lender over several.

DEFINED IN ONE PARAGRAPH → · MAJORITY LENDERS → · THE SECURITY TRUSTEE →

// 05 — WHERE IT DECIDES A FILE

The fee itself decides little; it is a small line in the pricing. The role decides more. In a club, the lenders argue over who takes the agency, because the agent sees the borrower's requests first and runs the process. For a credit officer in a lender that is not the agent, the narrow role is a warning: the agent will pass on the compliance certificate, but checking it, and following up what it does not say, is each lender's own job.

The role matters most when the borrower weakens. Waivers, information requests and restructuring meetings multiply, and an agent paid a flat fee for routine work may ask for more under the fee letter, or resign. Agreements commonly let the majority lenders appoint a successor, often after consulting the borrower. For the borrower, the agent is the channel through which every other lender hears the news, so how early and how clearly it is told shapes the first reaction of the whole syndicate.

READING YOUR FACILITY LETTER → · THE BANK'S LAWYER AND YOURS → · SYNDICATED LOAN →

// QUESTIONS PEOPLE ASK

Who pays the agency fee in a syndicated loan?: The borrower. It is usually a fixed yearly amount set in a fee letter between the borrower and the agent, paid in advance and kept by the agent rather than shared with the other lenders. Because it sits in a separate letter, it does not appear in the facility agreement, and lenders who are not the agent may not know the figure. Extra work, such as an amendment or a restructuring, may carry further fees under the same letter.
Is the agent bank responsible to the other lenders for the borrower's credit?: Generally not. Loan-market agreements commonly describe the agent's role as mechanical and administrative, relieve it of any duty to check what it passes on, and record that each lender made its own credit appraisal. The agent must still do what the agreement requires, and where it has a discretion, English courts have expected it to act in good faith. Assessing the borrower remains each lender's job, including the agent bank's own credit team in its capacity as lender.
Can the agent bank resign or be replaced?: Usually yes. Agreements commonly let the agent resign on notice and let the majority lenders appoint a successor, often after consulting the borrower or with its consent where no default is continuing. Many also let the majority lenders replace an agent. Resignations tend to follow a change in the agent's strategy, a sale of its share, or a workload the fee no longer covers, which is why they cluster around restructurings.
What is the difference between a facility agent and a security agent?: The facility agent administers the loan: money, notices, rates and votes. The security agent, or security trustee, holds the security on behalf of all the lenders and enforces it on their instructions, so a lender can sell its share without the security being retaken. One bank often does both, under separate appointments and sometimes for separate fees, but the duties differ: the security trustee holds property for others, which the facility agent does not.

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THE GLOSSARYIN ONE PARAGRAPHAgency fee What is an agency fee in a syndicated loan, and what does the agent do for it?