underwriting outline

underwriting spread,

• $ paid for underwriting

• negotiated underwriting
• built into price, competitive underwriting

spread for corporate issue,

• difference between public offering price and issuer proceeds

spread for a municipality

• difference between reoffering yields and syndicate bid to issuer 

spread factors

• size of issue
• size of corporation
• size of industry
• size of minicipality
• reduced by underwriter's advertising and registering/blueskying costs
• divided among syndicate members and broker/dealer that assists in selling issue

sales charge

• lead underwriter gets part
• known as manager's fee
• part of total spread
• manager gets fee on every share of bond sold-did preparation work
• concession, syndicate member decides selling group will sell bonds for them, syndicate member gives part of spread to selling group member
• syndicate members get rest of spread

corporate spread

• manager's fee, compensation for work on underwriting. 
• receive manager's fee even if they don't sell shares
• underwriting fee. sales charfe beyond manager's fee
• underwriting fee, biggest part of sales charge
• get underwriting fee not used in concession, if syndicate members allow selling group broker/dealers to sell shares
• no name, remainder of underwriting fee not used in concession
• syndicate member a)get underwriting fee b)give concession to selling group member

 In a corporate issue, a syndicate member receives which of the following upon sale as part of the underwriting?

• underwriting fee
• underwriting fee for syndicate sales
• managing fee, manager gets
• concession, for selling group sales

Municipal spread

• manager's fee, for syndicate manager, gets even if he doesn't sell the bonds
• total takedown, for syndicate members and syndicate manager
• selling group, gets concession for sales
• total takedown, concession and additional takedown 
• manager buys municipal issue at a discount
• total takedown, manager awards bonds to syndicate members excluding discount 
• total takedown= concession + additional takedown

In a municipal issue, a syndicate member receives which of the following upon sale of part of underwriting?

• takedown
• syndicate gets takedown
• selling group member receives additional takedown
• spread, total

underwriting outline

1. notice of sale-placed
2. underwriters use New Issue Worksheet
3. underwriter submits New Issue Worksheet with Good Faith Deposit, returned to losing bidders
4. firm commitment underwriting, underwriter buys issue from issuer and sells to investors

• financial advisers with business relationships with municipalities cannot bid on competitive issues without issuer's permission
• potential conflict of interest, Municipal Securities Rulemaking Board (MSRB) stop advisers from working as underwriters without permission
• conflict of interest, adviser working for municipality wants lowest rate for bonds, underwriters want higher rate for bonds to make bonds attractive to investors

 Scale in a municipal bond

• yield scale, new bonds are priced NOT in dollar amount
• yield scale, yield to maturity for serial bonds as they mature
• serial bonds have some principal maturity/year
• offering scale variables a)interest rate of each maturity date b)price bond is offered
• normal yield: low interest in beginning, higher interest later, most common
• inverted yield, high interest in beginning, lower interest later, least common
• flat yield, same yield in beginning as later, rare

Revenue bonds

• munis issue to fund a project/facility
• revenues will repay bond issue 
• revenues will pay for maintenance 

Which of the following describes a normal yield scale?

• early maturing bonds have lower yields
• yields increase later

inverted

• high yields at beginning
• lower yields later

Negotiated underwriting

• issuer does not need competitive bid
• may get lower price from negotiation than bid
• municipality has a relationship with an investment banker-worked with in past
• underwriter negotiates best price with issuer-thinks about what the expected market price for bond will be
• usually firm basis
• best efforts basis, can be
• best efforts, usually all or none underwriting