An invitation to participate is a solicitation sent by arrangers to short-listed participant lenders in general syndication describing the basic terms and conditions of the financing and asking them to participate in the transaction within set tiers, with the confidentiality letter attached.
The indication of intent of an investor submitted to the bookrunner to purchase a certain amount of a facility at a certain price during general syndication is a subscription. Subscriptions and commitments are based on credit approvals by each bank, which therefore cannot be increased by arrangers.
The dominant buyers of syndicated loans are now non-bank institutions, including hedge funds, loan-participation mutual funds known as prime funds, pension funds, traditional fixed- income investors, and Collateralized Loan Obligations (CLOs).
When the total commitment amount tendered by lenders equals the financing target amount, the transaction is fully subscribed. When the tendered amount exceeds or is less than the target amount, the deal is oversubscribed or undersubscribed, respectively. Unless there is oversubscription, the lenders receive full allocation.
In the case of undersubscription, the arranger will either make up the difference or flex loan terms and re-market the deal. Arrangers want to avoid over-subscription, since it can leave participants with smaller amounts than they anticipated, and undersubscription, since this can leave an impression of syndication failure and potentially hurt future business.