Standby agreement(redirected from Standby Commitments)
In a rights issue, agreement that the underwriter will purchase any stock not purchased by investors.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved