| Topic Name: |
Lots of misinformation |
| Message Name: |
In old industry parl |
| Date Posted: |
04/18/2000 |
| In Reply To: |
Hi Tech Banker
In a bond offering, there are lead managers, book runners, co-ordinators etc. Could you please tell me what those terms mean? I'd say that the managers do the structuring and the rest just sell the bonds but I'm just guessing. |
| Message: |
In old industry parlance, the lead manager was the firm "on the left" of the prospectus cover. The co-managers were "to the right" of the lead manager. The syndicate fell below the managers.
For example:
Goldman, Sachs & Co.
Bear, Stearns & Co.
J.P. Morgan & Co.
Dillon Read & Co.
CS First Boston Morgan Stanley & Co. Salomon Brothers
Kidder, Peabody & Co Lehman Brothers Volpe Welty & Co.
Smith Barney Lazard Freres BT Securities
In this case, Goldman is lead (or book) manager. They will run the transaction, and the deal books will physically reside at Goldman's offices. Bear, JP Morgan and Dillon are co-managers, meaning that they will assist in drafting the prospectus (and by traditional understanding, provide research and trading in the aftermarket). The other firms are in the syndicate, meaning that they will help distribute a very small number of shares each.
The way that this has changed over time is that we have added things like "joint lead managers" and other such ways of saving face while sharing space on the cover of a prospectus. For the most part, syndicates have gone away, or at the least become much, much smaller. Thus, you're more likely to see a cover nowadays like:
Morgan Stanley Dean Witter Deutsche Banc Alex. Brown
Robertson Stephens
Banc of America Securities
Thomas Weisel Partners
In this case Morgan and Alex Brown co-lead the deal, with Robbie, BAS and Weisel as co-managers. There is no syndicate to speak of. Morgan would likely physically have the books (not that that means much of anything), but roughly equal economics with Alex Brown.
The dynamics of being lead- versus a co- is that the lead manager gets the lion's share of the economics. An investment banking financing fee is broken up into various elements, including management fees and selling concessions. The breakdown of the institutional pot greatly affects how much each bank gets paid, but in a competitive pot, the lead manager walks away with virtually all of it.
From a deal processing standpoint, the lead manager takes the lead in drafting the prospectus, and gets to dictate style. The lead manager will do almost all of the deal marketing, meaning that co-managers do not go on the roadshow. Internally, this means that co-managers will mirror the internal committee process for the lead manager (screening, commitment, etc.), but once the deal is filed with the SEC, the co-manager role drops off to actually placing the stock, which is in any case a salesforce function rather than a banking function. Primarily, for a co-manager, after filing the main role for banking is to make sure the deal is on track and that research and S&T is on the ball.
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