Standby agreement

(redirected from Standby Commitments)

Standby agreement

In a rights issue, agreement that the underwriter will purchase any stock not purchased by investors.

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.
References in periodicals archive ?
Under the terms of the program, Freddie Mac will provide participating warehouse lenders with standby commitments to purchase qualifying loans in the event a seller/servicer cannot meet its contract obligations or fails.
Some long-term commitments are only standby commitments and are not expected to be funded unless there are difficulties in finding long-term monies elsewhere.
Standby Commitment: Standby commitments can help developers obtain construction financing for new projects.