Term
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Definition
Type of security to be sold
Size of the issue
Total par value
Estimated public offering price
Estimated interest rate
Underwriter's spread
Underwriting commitment |
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Term
Types of Underwriting Committments
(terms are usually negotiated) |
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Definition
•Firm commitment-buys from
company/resells to public (Acts
as a "Principal". Earn
the Spread. Underwriter assumes
FIN liability
•Best efforts - acts as "agent", no
FIN liability
•All or none - entire issue must
be
sold or deal is canceled
•Mini-maxi - min amt must be
sold. Can sell until hits max
•Stand by - if rights offering doesn't
sell on the shares. "Principal" |
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Term
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Definition
spreading the risk of the underwriting (and the financial rewards) among a number of investment banks.
Syndicates chosen based on:
A. geographic location
B. track record
C. financial capability |
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Term
Syndicate Agreement
Syndicate Letter
(agreement among underwriters) |
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Definition
| establishes the responsibilities and liability of each syndicate member. |
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Term
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Definition
the intial underwriter, has full control on syndicate decisons
Determines each member's share of
profit/loss
gets a management fee (set by him)
responsible for due dillgence/research |
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Term
| Western/Eastern Syndicates |
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Definition
Western - each syndicate member takes a specified amount of the issue and is responsible only for that amount. The performance of the other syndicate members has no effect on his results
-Used for risky issues to limit liab
Eastern - syndicate members share in the selling responsibility and liability as a group. The account is "undivided." Typical for Munis
-takes on same % of total remaining liability even if got rid of his |
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Term
Underwriter's Concession
(Total Takedown) |
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Definition
Profit the managing underwriter "concedes" to the syndicate members
EX. total profit=10
management fee =1.2
underwrtr concession/total takedwn =8.8 |
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Term
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Definition
profit given to the selling group
taken out of Total Takedown/Undwr Conce |
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Term
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Definition
small discount given to firms not in syndicate or selling group
LESS than the selling concession |
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Term
| Issuer Registers the Issue |
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Definition
Registration statement - bascially the
PROSPECTUS
-Registers issue in each state it wishs
to be sold ("blue Skying")
-Prints Certificates |
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Term
| 20 day "cooling off" period |
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Definition
-after preliminary prospectus is
registered
-final price/offering only after Final prospectus is drafted after "price meeting" |
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Term
|
Definition
-"red herring" NOT OFFER TO SELL
-used to gauge potential interest in
the issue (price altered accordingly)
-Its use terminates when the 20 day cooling off period expires
- contains the financial statements of the issuer
- while issue "in registration":
Customers that would be
prospective buyers of the offering
may be sent the preliminary prospectus |
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Term
|
Definition
-if insufficient consumer interest in
the issue, underwriter released from
their committment |
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Term
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Definition
Effective date: after the final price
is filed with the SEC
-sent AT or PRIOT to sale confirmation
- delivered as a printed doc or delivered electonrically to all buyers |
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Term
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Definition
"Insiders" can't buy ANY COMMON EQUITY IPO (insures shares get to public)
-FINRA/NASD member firms, officers,
employees, immediate family
-Fiduciaries to member firms
-Portfolio Managers
-Passive owners of Broker-Dealers |
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Term
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Definition
| underwriters may request up to 15% additional shares to meet oversales |
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Term
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Definition
opening quote is below the Purchase price 17-18. 20 purchase
to prevent this the managing underwriter places STABALIZING BID at the purchase price 20 -- repurchase shares in the secondary market to correct price imbalances that can occur |
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Term
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Definition
-if too many pple are hitting the
managing underwriters stabilizing
bid, that member loses is
their concession
-influences syndicates to sell only to
Long term investors, not speculators |
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Term
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Definition
-Experienced issuers can keep registrat
statement filed w SEC for 3 years
-can sell issues whenever
-no 20 day cooling period
-cheaper/faster |
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Term
|
Definition
Horizontal Merger- companies in same
business
Vertical Merger - companies in diff
businesses |
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Term
| Divestitures and Spin-Offs |
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Definition
| investment banks "shop" the subsidiary or business line to other companies that might be buyers. |
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Term
| Leveraged Buy-Out ("LBO") |
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Definition
| Investment bankers can help arrange for the management and private investors to "buy-out" all of the public shareholders, in essence, taking the company private. |
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Term
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Definition
| buys stock of other companies. The holding company acquires enough shares (though not necessarily a majority stake) to get some of its own representatives on that company's Board of Directors - thus it can influence that company's management policy and decisions. |
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Term
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Definition
-Printing Certificates
-Delivering Certificates
-Registering securities with SEC |
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Term
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Definition
is published once a new issue's registration is effective, it publicizes the issue
shows the GROSS proceeds of a new issue offering
NOT considered an advertisement/offer
Nnme of issuer;
names of underwriters;
type of security;
public offering price of security; aggregate public offering price of issue; nature of the issuer's business. |
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Term
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Definition
| entered AT or JUST BELOW the p.o.p (public offering price) |
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Term
| GO Bond Competitive bidding |
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Definition
GO Bonds – Sold through COMPETITIVE BIDDING (lowest interest wins > highest price)
Consult Financial Advisor
Get Bond Counsel (lawyer) to draw up Bond Contract/Trust Indenture and Renders an Opinion
Official Notice of Sale is put out in Daily Bond Buyer newspaper- soliciting bids for the bonds
Good Faith check deposited(necessary) by all bidders, returned to all losers, kept from whoever wins (usu.1%/2%)
Net Int. Cost –takes lowest avg. interest rate OR True Int. Cost –uses timing of pmts, present value
Legal Opinion (unqualified) provided, states validity/legality/tax status
Official Statement provided by issuer – bidders want this for due diligence |
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Term
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Definition
FIRST step taken by the syndicate when determining what to bid bid
Yields go up as Maturity does
(Normal Yield Curive) |
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Term
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Definition
| Syndicate members that sell directly to public |
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Term
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Definition
| what syndicate members earn if bonds sold through "selling group" |
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Term
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Definition
| where announcement of new GO issue is sent after bid is won |
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Term
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Definition
– filled FIRST
- Filled at “net price” |
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Term
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Definition
orders of syndicates/selling groups that are taken in the the initial "order period" right after the pre-sale orders are filled
identity of customer IS disclosed |
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Term
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Definition
the difference between the bid and production
(the expected total dollar sales of the issue) – amount bid for the issue
set by the syndicate |
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Term
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Definition
After initital "order period"
if bonds still unsold, specific syndicate members allocated the profit
customer identity NOT disclosed unil order is filled |
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Term
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Definition
Syndicate takes remaining bonds into
own inventory at net price < total takedown
filled last |
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Term
| Accept orders in this order |
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Definition
Pre-Sale Orders
v
Group Net Orders
v
Designated Net Orders
v
Member Takedown Orders |
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Term
| Competitive/Negotiated Bid |
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Definition
Competitive Bid - Spread NOT disclosed
Negotiated Bid - Spread IS disclosed |
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Term
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Definition
municipal primary market newspaper
gives Calendar of Muni Offerings
Official Notices of Sale are published by issuers looking for bids on new issues
contains both VISIBLE SUPPLY and PLACEMENT RATIO
contains Bond Price Indexes
-Bond Buyer "40" -forty municipal bonds, both General Obligation and Revenue bonds, with an average maturity of 25 years
-"20" Bond Index - twenty General Obligation bonds with 20 years to maturity, all rated A or better
-"11" Bond Index- The 11 Bond Index consists of eleven of the twenty General Obligation Bonds included in the 20 Bond Index, but these are the higher quality bonds rated AA or better
-Revdex "25" Bond Index - twenty-five revenue bonds with 30 years to maturity, rated A or better. The yields on this index are always higher than the 20 G.O. Index because of the higher risk inherent in revenue bonds |
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Term
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Definition
Total of long term municipal offerings scheduled for the next 30 days
large Visible Supply means interest
rates likely to rise (to attract
investors)
small Visible Supply means interest
rates likely to fall |
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Term
Competitive Bid
(US debt auction) |
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Definition
Usually big security dealers
min = $5mill
max = none |
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Term
Non Competitive Bid
(US debt auction) |
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Definition
usually small investors
their bids are always filled (at avg. winning rate)
min = $100
max = $5mill |
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Term
|
Definition
the form on which an underwriting syndicate submits its bid to the issuing municipality.
includes proposed coup rate, price (their bid)
really is an uncompleted contract to buy the bonds |
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