As underwriter, the lead arranger initially commits to provide the required financing to a borrower in primary syndication and acts as bookrunner. A sub-underwriter commits to taking part of the total transaction (total commitment) in primary syndication before the financing is offered to investors/lenders in general syndication, among whom the total commitment is subdivided – including lead arrangers. A co-underwriter is either a joint lead arranger or sub-underwriter.
In cases where multiple underwriters execute the loan agreement as direct co-lenders, [they participate] in the primary closing with the borrower.
Participating banks accept invitations from lead arrangers to co-underwrite and syndicate the loan. As participant lenders, they keep a part of the amount they have underwritten, generally equal to their intended final hold amount. As sub-underwriters, participants share funding and underwriting fees on a pro rata basis.
Borrowers often request invitation of certain relationship banks as participant lenders, who tend to accommodate borrower requests for waivers and amendments, and as sub-underwriters, to reward them with league table status and increased compensation. However, accommodation of the borrower’s wishes frequently complicates syndicate structuring and facility distribution.