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Simple English definitions for legal terms
standby underwriting agreement
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A quick definition of standby underwriting agreement:
A standby underwriting agreement is a deal between a company selling securities and a financial institution. The financial institution agrees to buy any unsold shares of the securities after the public offering for a fee. This helps the company ensure that all of their securities are sold and they receive the funds they need.
A more thorough explanation:
A standby underwriting agreement is a contract between an underwriter and an issuer of securities. The underwriter agrees to purchase any unsold shares of the securities after a public offering for a fee. This agreement is also known as a standby commitment.
Company A wants to issue new shares of stock to raise capital. They hire an underwriter, Company B, to help with the public offering. Company B agrees to purchase any unsold shares of the stock for a fee. This agreement is a standby underwriting agreement.
Another example is when a municipality issues bonds to fund a project. The underwriter agrees to purchase any unsold bonds after the public offering for a fee.
These examples illustrate how a standby underwriting agreement works. The underwriter provides a safety net for the issuer by agreeing to purchase any unsold securities. This gives the issuer confidence to proceed with the public offering, knowing that they will not be left with unsold securities.