His profit/loss will come from the difference (or “skim”) of loan arrangement fee paid by the customer and fee paid to the syndicate members. Once he has established the initial syndicate group of banks and established the basic share of the loan for each syndicate member, his job is over and he goes off looking for a new deal to be Book Runner on. The Book Runner’s role is essentially transactional. This “selling” of new customer loans into the other banks is called the Primary Loans Market. If the opposite is true then the Book Runner will have to pass on the entire fee (or more) to entice lenders. If the loan is very popular (because it is a customer or industry segment or country that lots of banks want to get into) then the Book Runner will keep a big portion of the fee for himself. The Book Runner then finds various other banks either in the same country or other countries who want to come in on the loan and the key tool in the negotiation is the amount of the fee that the Book Runner passes on to the syndicate members.
#Lead arranger vs bookrunner plus
The Book runner undertakes to provide ABC with the £200 million he needs at an agreed interest rate (usually LIBOR plus a margin) for an agreed fee, say 50 basis points of the loan size.
The customers do not have the contacts, knowledge of rates nor relevant experience to put together syndicates of banks so he normally chooses one bank to be the Book Runner (or Mandated Lead Arranger – MLA).
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