firm commitment

Firm Commitment

1. A lending institution's promise to enter into a loan agreement with a specific entity, within a certain period of time.

2. An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.

Notes:

1. The lender specifies the terms that that must be met in order for the loan to be processed. Also known as a "standby loan commitment."

2. In a firm commitment, underwriters act as a dealer and are responsible for any unsold inventory. The dealer profits from the spread between the purchase price and the public offering price. Also known as a "firm commitment underwriting."

See also: Best Efforts, Bought Deal, Committed Facility, Competitive Bid, Dealer, IPO, Negotiated Underwriting, Standby Underwriting, Underwriting

---

firm commitment

In securities offerings, a commitment by the underwriter to purchase securities from the issuer for resale to the public. Thus, the sale is guaranteed by a firm commitment to the issuer. With a firm commitment, the risk of being unable to sell an entire issue at the offering price is transferred from the issuer to the underwriter. Also called bought deal.