The syndicate desk is a team within a sell-side investment bank that is responsible for researching, marketing, and pricing large deals across both debt and equity capital markets. It’s a product group that usually sits between the investment banking and sales and trading divisions of a bank.
A bank’s syndicate desk is a critical component of getting new deals to market, attracting the right buyers at the right price for the seller.
When a client wants to raise significant capital, they’ll work with an investment banker to determine an optimal path forward. The investment banker, in turn, will bring on the syndicate desk to assist in deal execution. This primarily involves taking a large debt or equity issuance from the client and allocating it in pieces to various investors.
Syndicate Desk Example
Say a company wants to raise $1B for a new toilet paper factory. Their coverage or capital markets investment banker advises they consider issuing high-yield debt.
The bank’s syndicate desk is brought in, providing guidance on market appetite for high-yield notes in the toilet paper vertical, as well as potential pricing.
The client likes what they hear and elects to proceed with the deal. The syndicate desk takes orders from multiple investors across the market (tracking the orders in an order book) to divide up the issuance. When the order book is closed to new investors, the syndicate desk will provide final pricing and execute the transaction.
Each investor in the order book gets a piece of the $1B high-yield debt, which is subsequently open for trading on the secondary market.
Bringing a New Deal to Market
Prior to launching a new deal, it’s the syndicate desk’s responsibility to gather pertinent market data and feedback. They’ll communicate with other market participants, such as buy-side investors and other sell-side banks, to ultimately create a deliverable to share with the company planning on launching the new deal (issuer).
Referencing the market feedback, the syndicate desk will guide the issuer on pricing and communicate their opinion on the feasibility of successfully executing the deal.
The whole process can be broadly broken down into three stages, Origination Guidance, Transaction Execution, and Transaction Administration.
Origination Guidance
The syndicate desk is constantly plugged into the market. They’re in communication with buy-side investors at hedge funds and asset managers, as well as other sell-side sales & trading desks. They use this connectivity to help inform their view on investor appetite and market conditions.
With this view, the syndicate desk will provide a recommendation to the issuing company, often working in conjunction with the firm’s investment banking coverage group for the relevant industry.
Transaction Execution
The next phase is transaction execution, where the syndicate desk takes a more active role. Working alongside the issuing company, and syndicate counterparts at other banks involved in the deal, they’ll align on transaction strategy.
This strategy includes final pricing, target investors to come into the deal (purchasers of the issuance), and general go-to-market approach for the deal.
The syndicate desks involved in the deal will build the book, working with the bank’s sales team to bring in orders. The appetite of investors through the process will help inform final pricing and the decision to close the final book.
With the order book closed, the syndicate desk advises the issuer on the final issue size. In the event of an oversubscribed transaction (where the order book has greater appetite than is available), the desk will make a determination on each investor’s allocation.
The goal is to place the issuance (bonds or equity) with long-term, stable holders that will be unlikely to sell back into the secondary market immediately following transaction launch.
Allocation is also an art, as you need to keep multiple groups of investors happy while also ensuring the best outcome for the client.
Proper building of the order book helps ensure successful execution and prevents turbulence in the secondary market, which would reflect poorly on the issuer (as well as the syndicate banks).
Transaction Administration
Once the offering is launched, the syndicate desk remains involved in an administrative capacity. They’re responsible for writing trade tickets for investors that received an allocation, as well as coordinating any hedges that investors wish to simultaneously enter into.
This role is typically more back office and settlements oriented, so is likely to be handled by a junior member of the team.
Equity Syndicate Desk
The equity syndicate desk performs the functions listed above, but is also more closely involved in offer marketing. They’ll participate in investor education and the roadshow, for example.
IPOs are the most time consuming activity for an equity syndicate desk, but they also receive frequent business from follow-on equity offerings for companies that are already publicly-traded.