A melt cooler and valving system for an underwater pelletizer has a diverter valve that facilitates multiple modes of melt processing. The cooler has a cooler inlet line that conveys the melt to the cooler, and a cooler outlet line that conveys the cooled melt from the cooler. The diverter valve is configured to convey the melt to and from the cooler during a cooling mode of operation, to convey the melt around the cooler during a bypass mode of operation, and to drain the melt from the cooler and the diverter valve during a drain mode of operation. The diverter valve is compact and therefore contains a minimum of product inventory. The valve is streamlined and direct in its bypass mode, and includes a drain capability to allow for faster, easier cleaning of the process line, which in turn provides a fast changeover time with less lost product.