The debt setter, also known as book runner, is a bank or group of banks that guarantee the best possible result in a debt issue or shares in the primary market. It is a term widely used in investment banking.
It is a process that takes place in the capital markets , and is very well valued and received by institutional investors. Among its multiple functions, are to give the issuer the best possible price and a well diversified investor base.
The work of allocators ( book runners ) can be performed by three ways:
Order book method: investor requests are recorded in a book of orders.
Assurance method: in this case the placement banks buy the bonds or shares from the issuer, and then place them among the investors. Therefore, the risk is assumed by the banks exposing themselves to market fluctuations (selling later in the secondary market at a higher price) and the issuer at that moment closes its financing at the agreed price.
Bridge loan: when the two previous methods are used.
In investment banking, it is normal for this process to be carried by a syndicate of banks (several banks at the same time), to diversify risks and to reach a higher investment base. They are responsible (depending on the method used) for the placement of the debt or shares. The figure of the underwriter, it is common to assign parts of the issue to other banks to carry out the process of attracting investors.
The roadshow : the expansion of the investor base
Once the investor has assigned a bank or several banks as placers, they are mandated to hold meetings, presentations, conferences, etc., that is, the roadshow .
These actions carried out by the underwriters are neither more nor less than to attract investors, expand the investment base and publicize the issue. The more people who come to the issue, there will be more demand and the price will be higher.