Where sub-underwriting is desired, syndicate structuring starts when lead arrangers solicit sub-underwriting commitments from prospective co-underwriters. Through sub-underwriting, the MLA’s chief concern is the reduction of syndication risk.
Together with the lead arrangers, the sub-underwriters comprise the management group. The management group members co-underwrite facilities and are generally involved in structuring the financing. The co-underwriters – the lead arrangers and sub-underwriters – assume the full risk of its distribution (syndication risk) before bookrunning starts and market demand for the financing can be gauged.
Large financings commonly require lead arranger to hold a bank meeting with the co-underwriters to address questions about the deal, tiers (tickets) and syndicate titles, announce closing fees, and establish a timetable for commitments, allocation and syndication closing. Then the lead arranger begins to draw up the facility agreement. Depending on their interest, the terms of the facility might be adjusted in several rounds.
Co-lenders [...] are able to negotiate loan provisions to some extent, especially the sections relating to the agent/co-lender relationship.
Lenders are invited to participate in general syndication to fund the financing. They are generally free to subscribe for a ticket of any size. The size of each lender’s commitment is a matter of each bank’s internal policy and depends on such factors as the bank’s relationship with the arranger, size (total assets), the current relationship with the borrower, internal credit policies on exposure to the borrower, the borrower’s country or industry, and the specific terms of the financing facility.
Each underwriter becomes a finance party to the facility at its signing. Once the facility goes into general syndication, each lender becomes a finance party when part of an underwriter’s commitment is transferred to that lender.
The relationship between syndicate members – from invitation to participate to syndication closing – is regulated by a syndication agreement. The syndicate closes upon successful syndication.