Debt Capital Markets 101: What does DCM syndicate do?

This is the fifth post in my guide to debt capital markets. All of the previous posts in the series can be found here.

In this post, I’ll be focusing on the role of the syndicate team within a debt capital markets department.

What is the purpose of syndicate?

The role of syndicate is to provide a bridge between the origination team (and therefore the issuer clients that want to launch a new deal) and the market.

Using the term, ‘syndicate’

To be honest, I’ve always had a problem with the term, ‘syndicate’, particularly when referring to a single member of the syndicate team. There is no single-word descriptive term (i.e. equivalent to ‘originator’ within the origination team).

A lot of people simply use ‘syndicate’, as in, “Can I speak to your syndicate?”; others go with ‘syndicate guy’ (and sometimes, ‘syndicate girl’, which has less-flattering feel). ‘Syndicate official’, ‘syndicate member’ or ‘syndicate team member’ all feel either clumsy or overly-officious.

For the purposes of this guide, I’ll go with ‘syndicate person’ to denote an individual, and ‘syndicate’ when referring to the team or function.

What does a ‘syndicate person’ do?

Origination advice

The syndicate person obtains market information and investor views either by speaking to investors directly or through liaising with the investment bank’s fixed income sales force. The syndicate person then uses this information, along with the originator, to formulate the recommendation to the client.

Transaction execution

During the execution phase of a transaction, the syndicate person has a more hands-on role. In conjunction with the originator, and the syndicate people from the other banks involved in the trade, they are responsible for giving advice on pricing, target investors and the strategy required to raise the amount of money that the issuer would like.

They have overall control of the book build process, liaising with the fixed income sales force to ensure that investors submit orders into the book.

As the order book builds, the syndicate person provides on-going advice on how and when to change the price guidance, when to close the books and at what level to set the final price.

Once the order book is closed, the syndicate person advises on the final issue size and, for an oversubscribed transaction, how many bonds to allocate to each investor.

The objective is to place the bonds primarily with stable, long-term holders, such that bonds are not sold back into the secondary market following launch (or ‘on the break’, as it is often termed).

It is important for an issuer’s reputation in the market (and therefore for the success of its future bond issues) that a new issue trades well in the secondary market.

Transaction administration

The syndicate team is generally responsible for writing trade tickets with each of the investors allocated bonds, as well as coordinating and aggregating all the ‘market hedges’ that investors wish to execute at the pricing time.

Often these more administrative functions are performed by a junior member of the syndicate team, a desk assistant or by a dedicated individual with back office or settlements experience.

Wrap up

This post should have given you an overview of the syndicate role within debt capital markets.

In the next post, we’ll take a look at the specialist structuring teams within debt capital markets, including those that focus upon the issuance of hybrid capital and the origination and execution of liability management transactions.

Cheers,

Monty