What is primary syndication?

Initial underwriting is when a financing transaction is underwritten by mandated lead arrangers, which triggers the start of syndication.  After this, and depending on the syndication strategy, the MLA then proceeds into either a single-stage general syndication or a two-stage syndication with sub-underwriting prior to general syndication.

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Sub-underwriting is the commitment by a group of banks (sub-underwriters) to co-underwrite the full amount (total commitment) of a syndicated financing together with the MLA(s), after the initial underwriting but before the financing is offered to other lenders and investors in general syndication.   Sub-underwriting occurs during primary syndication.

Primary syndication is the intermediate phase in a two-stage syndication that occurs during a the “wholesale” phase, where the total commitment is co-underwritten and subdivided among the sub-underwriters for selling down to investors in general syndication.

Disney made sure to invite [its relationship banks] to bid for the lead mandate and pushed hard to make sure that qualified banks were invited to participate in the sub-underwriting.

– Esty, 2001

Syndicates are managed such that co-underwriters can sell down their underwritten exposure to their respective final hold amount within a minimum syndication period following the launch of syndication prior to the facility closing date (syndication date), to ensure successful syndication.  Through sub-underwriting, lead arrangers share the risks as well as the fees with the sub-underwriters, thereby reducing MLA earnings on the deal.