underwriting outline

• underwriting a.k.a. investment banking 
• help firms, corporations, municipalities raise $ 
• corporations use $ for growth and investment
• municipality use $ to build facilities, improve services

short term underwriting

• under 270 days
• bring to market
• bring to money market 

long term debt

• requires underwriting
• syndicate. help sell issue to investors

firm commitment underwriting

• underwriter promises to sell whole issue

standby underwriting

• underwriter is hired to sell leftover shares after rights offering
• rights offering, corporation that issues new shares offers those new shares to existing shareholders

when issued

• transacted on a conditional basis
• sold but certificates have not been issued
• issued stock can trade in secondary market
• underwriter sets settlement date 
• marked to market, price is recalculated every day the market price of the bonds change

best efforts underwriting

• issuer contacts one or more underwriters to sell an issue
• broker/dealers do NOT have to buy any shares they don't sell
• underwriter agrees to do best to sell issue
• for a corporation with poor credit rating to issue more securities
• when a brand new issue is not selling well
• mutual funds sold this way-brokers/dealers don't buy mutual fund shares for there own account, sell what they can
• many broker/dealers are involved

all or none

• syndicate must sell all issue or entire amount of securities not sold
• when issuer needs all $
• issue not sold, syndicate refunds $ to investors, charges issuer a fee

minimum-maximum

• issuer sets minimum amount of securities that MUST be sold
• issuer sets maximum amount of securities that MUST be sold
• when an issuer needs a minimum $ but would like more
• if minimum unsold, investors refunded
• common in limited partnerships raising $

managing underwriter a.k.a. lead underwriter

• researches issuer to understand financial health
• researches liquidation value, liquidity of issuer
• researches ability of securities to perform for investors
• managers receive fee for these responsibilities 

market out clause

• agreement between issuer and underwriter-allows underwriter to withhold issue from market if it isn't likely to be sold
• conditions where underwriter is not responsible for bringing issue to market such as bankruptcy, complete stock market crash-issuer doesn't have to pay underwriter
• if issuer doesn't provide full picture of financials, underwriter may be able to receive compensation-recover underwriting costs

corporate underwriting

• issue stocks and bonds for companies who want to raise $ to use in business

municipal underwriting

• issue bonds for municipalities as general obligation bonds and revenue bonds
• general obligation bonds-backed by taxing power of municipality
• revenue bonds-backed by revenues of the facility

All of the following are types of municipal underwriting commitments except:

• standby
• corporate only