Competitive Bid Option
- A form of the commercial loan syndication where banks submit competing bids on a loan. They can also sell their portion of the participation in a loan to other parties. The borrower has a choice of banks to choose from, and will generally pick the lender with lowest rates and/or fees. In most cases, the leading bank in the syndicate allocates the majority of the actual loan balance to other lenders and only keeps a small percentage of the loan for itself.
Competitive bid options are usually priced at just above the lender's cost of funds, or an index such as the LIBOR. The competitive bid process for commercial and industrial loans with U.S. banks closely resembles the tender panel process in the Eurocredit market. In this arrangement, several banks bid to buy short-term corporate notes via a revolving underwriting facility.
Investment dictionary. Academic. 2012.
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