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What is the underwriting spread?

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In an underwritten deal, the lead arranger retains some amount of the underwriting fee as compensation for its services and uses the rest either as sub-underwriter or closing fees.  The underwriting fee is the primary compensation for lead arrangers acting as the sole mandated bank and underwriter.  The breakdown of the arrangement fee is generally not made known to the borrower and is only verbally agreed among the syndicate members and confirmed in a follow-up mail.

The underwriting spread is the difference between the underwriting fee received by lead underwriters for the initial underwriting of the total financing amount and the amount of this shared with the sub-underwriters in the form of the sub-underwriting spread or paid directly to participant lenders in the form of closing fees.  The sub-underwriting spread is the difference between the amount of the underwriting fee paid by lead arrangers to sub-underwriters on the basis of the allocated amount of their underwriting and the closing fee paid by the sub-underwriters to participant lenders.

Underwriting Fees & Spread per Bank (Example)
Year Nr. of
UW Fee UW Spread
Mandated Lead Arrangers 1 0.30% 9,900 1,650
Lead Arrangers 4 0.25% 1,650
Arrangers 4
Co-Arrangers 4
Lead Managers 2

Closing Fees & Pool Income (Example)
Year Nr. of
Closing Fee
Closing Fee
Mandated Lead Arrangers 1 0.70% 2,100 200
Lead Arrangers 4 0.70% 8,400 800
Arrangers 4 0.70% 7,000
Co-Arrangers 4 0.60% 3,600
Lead Managers 2 0.50% 1,000
22,100 1,000

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