standby commitment

Standby commitment

An agreement between a corporation and investment firm that the firm will purchase whatever part of a stock issue that is offered in a rights offering that is not subscribed to in the two- to four- week standby period.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

standby commitment

A lender's promise to make funds available to a borrower for a specified period of time.Different from a line of credit because the standby does not contemplate a revolving relationship in which the borrower obtains money, repays some or all of it, and then has that same amount of credit available again for new borrowings.The standby is intended to be drawn down and then repaid according to normal promissory note terms.The most typical use is when a developer needs a takeout loan—permanent financing that will “take out” the construction loan—in order to obtain a construction loan. Rather than lock in possibly high interest rates and prepayment penalties for permanent financing,the developer will pay a fee for a standby commitment.When the project is completed,the developer can then elect to fund under the standby and then wait and see if interest rates drop or if it will sell the project rather than retain it, or proceed with permanent financing.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
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As consideration for providing a standby commitment in connection with the Rights Offering, the company also received 15,009,026 5-year warrants to purchase up to 15,009,026 common shares at an exercise price equal to CAD0.415 per Common Share.
(NASDAQ: UPIP) said its rights offering raised USD12.5m of gross proceeds, including proceeds from a standby commitment made by Indaba Capital, L.P.
Because the offering was over-subscribed, Rio Tinto did not purchase any shares under its standby commitment. As a result of the rights offering, Rio Tinto's stake in Ivanhoe Mines increased from 50.9% to 51.0%.
The Chinese lender acted as lead underwriter and bookrunner for the issue with standby commitment.
The company added that the credit line from the warehouse lender that is supported by the standby commitment will fund only the loans the participating seller/servicer intends to sell to Freddie Mac.
In Westchester, AZREG arranged a $70.2 million standby commitment for a 300-unit high-rise apartment complex.
However, as RIO will continue to provide a standby commitment for the full amount of the US$1.8 billion offering and will buy as many new shares in Ivanhoe as its 51% shareholding at agreed price, we view the news as neutral on IVN.
The company will issue 718,036,282 common shares in total to the rights offering and the standby commitment, and will receive aggregate gross proceeds of USD250m.
Standby Commitment: Standby commitments can help developers obtain construction financing for new projects.