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Debt Capital Markets 101: DCM department structure and the role of the originator

Hello and welcome to the fourth post in my introductory series about debt capital markets.  If you haven’t read the previous posts, you can read them here.

In this post, I’ll be covering :

  • How debt capital markets departments are generally structured; and
  • The role of a debt capital markets originator

Let’s get straight into it.

How are debt capital markets departments usually structured?

Debt capital markets departments tend to be split into 4 main components:

  • Origination
  • Syndicate
  • Structuring or specialist teams
  • Legal (sometimes known as a Transaction Development or Transaction Management team)

Depending on the investment bank, there may be additional functions which fall within debt capital markets, for example, the marketing of derivative products to issuer clients, or these might be the direct responsibility of the DCM originator themselves.

What does an originator do?

Originators work with their issuer clients to bring new bond issues to the market.

In practice, this means that individual originators will communicate with their clients on a regular basis in order to provide market intelligence and other information relevant to the client’s funding needs.

Originators communicate with their clients using the telephone, email, physical meetings and presentations, and sometimes by SMS/text message (!). For more sophisticated clients, communication may sometimes be via instant messaging using Bloomberg.

The originator will provide recommendations on when and how to issue new bonds in order to meet the client’s objectives.

Transaction recommendations are conveyed to the client either verbally, as emails or as slide presentations (generally produced in Powerpoint). In some cases, when a client has a specific funding need, it will invite each of its relationship banks to present a formal transaction recommendation at a physical meeting. These will often take place back-to-back over the course of a day or two and are known as ‘beauty parades’ (thankfully, no one has to wear a bikini or sing).

When an issuer decides to issue new bonds (or undertake any other DCM-related transaction), it will mandate banks to execute the transaction on its behalf. The objective of an originator (and, indeed, the debt capital markets department as a whole), is to be mandated on as many transactions as possible, since fees (for the most part) are only paid on executed transactions.

In most cases, banks are not paid directly for the advice and intelligence that an originator and their colleagues provide to the client. Instead, in providing this advice, the originator hopes that the client will mandate their bank to execute a bond transaction, on which revenues are generated.

During the execution of a new issue, the originator undertakes a general advisory and organisation (and in some cases, dogsbody) role, helping to ensure the transaction is launched successfully. This can include:

  • providing advice to the client during the course of the transaction process e.g. where to set price guidance, when to open the order books
  • planning and organising investor marketing of the new issue, e.g. a roadshow to meet potential investors, a public conference call
  • organising and chairing regular conference calls amongst the parties involved in the transaction, e.g. to provide progress updates to the client
  • overseeing the other parties involved in the transaction, e.g. bank legal teams, external lawyers

Personally, speaking as a former originator, I always felt that the originator had ultimate responsibility for the success of the transaction and for the happiness of the client. The buck stopped with me. That said, I’m sure colleagues in other areas of the department felt a similar level of responsibility – when everyone felt a shared sense of responsibility, we found that a transaction tended to go well.

Wrap up

That concludes this post. In the next instalment, we’ll look at the role of syndicate within a debt capital markets department.

All the best,

Monty

4 comments… add one
  • J

    This is quite sad if it’s all you can post after 12 years of industry experience.

  • mohamed

    thanks a lot Monty for the marvelous brief about the dcm, i have an interview tomorrow and i did not have any idea about the dcm till i have read your post,
    thank again and best wishes.

  • Samuel

    Thanks for the write-up. I work in Legal of a financial firm and need a jump-start in DCM, and your blog posts are very useful! Thanks!

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