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Firm Commitment Underwriting |
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Firm commitment underwriting An underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares. Also known as bought deal. Standby Agreement An agreement between the issuer of a security and its underwriters stating that the underwriters are responsible for any unsold portion of the issue. That is, the underwriters agree to buy the remainder of a new issue if they are unable to place its entirety with investors. This transfers the risk of the unsold portion of the issue from the issuer to the underwriters. This guarantees that the issuer will raise the capital it intends to raise, but leaves the underwriters with the possibility that they must purchase an issue with low value. As a result, underwriters charge a standby fee for a standby agreement. It is also called firm commitment underwriting or a backstopped deal. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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