Requested underwritten offerings: Overview, definition, and example
What are requested underwritten offerings?
Requested underwritten offerings refer to securities offerings where an issuer (such as a company or government) requests a group of underwriters to purchase and distribute its securities to the public. In this type of offering, the issuer does not mandate the underwriters to purchase a specific amount of the securities; instead, the underwriters agree to buy and resell the securities based on the demand from investors.
Typically, the underwriters are financial institutions or investment banks that assess market demand and help determine the offering price and terms. The “requested” aspect means that the issuer has asked the underwriters to conduct the offering but the final decision on the amount and price of the offering is based on market interest.
This type of offering is often used in initial public offerings (IPOs), secondary offerings, or bond issues, where the issuer seeks professional assistance in selling their securities but may not know exactly how much of the offering will be sold until the underwriting process is completed.
Why are requested underwritten offerings important?
Requested underwritten offerings are important because they provide issuers with professional support in bringing their securities to market. The underwriters help assess investor interest, determine the offering price, and manage the risk of the offering by agreeing to purchase the securities. For issuers, this reduces the uncertainty around pricing and demand, as the underwriters have the expertise to manage the offering process.
For investors, requested underwritten offerings are important because they provide an organized and structured way to participate in securities offerings, with the backing of underwriters who typically ensure that the offering is conducted fairly and transparently.
This type of offering also provides liquidity, as underwriters take on the risk of buying unsold securities, and it can be an efficient way to raise capital or sell existing shares or bonds.
Understanding requested underwritten offerings through an example
Imagine a company, ABC Tech, decides to go public by offering shares through an IPO. ABC Tech reaches out to a group of underwriters, including major investment banks, and requests them to underwrite the offering. The underwriters assess market demand and suggest an offering size of 10 million shares at a price range of $15 to $20 per share.
The underwriters purchase the shares from ABC Tech and offer them to investors based on their assessments of demand. The final price of the shares is set at $18 per share, and the underwriters sell the shares to the public, distributing the proceeds to ABC Tech. The underwriters take on the risk of any unsold shares but work to ensure the offering is successful by finding buyers.
In another example, a government issues bonds to raise funds for a large infrastructure project. The government requests underwriters to manage the bond offering. Based on market demand and investor interest, the underwriters set the price and terms of the bond and ensure that the bonds are sold to institutional investors, providing the government with the funds it needs.
An example of a requested underwritten offerings clause
Here’s how a clause related to requested underwritten offerings might look in an offering agreement:
“The Issuer hereby requests the Underwriters to conduct an offering of its securities, including the determination of the offering size and price based on market conditions and investor demand. The Underwriters agree to purchase the securities at a price to be determined, subject to the final terms agreed upon by the Issuer and the Underwriters.”
Conclusion
Requested underwritten offerings are a key mechanism in the financial markets that help issuers raise capital by relying on underwriters to assess market demand, set offering prices, and distribute securities. This type of offering provides issuers with the expertise and support needed to navigate the complexities of the market, while also offering investors an organized way to participate in new securities. By managing risk and ensuring liquidity, requested underwritten offerings play an important role in facilitating access to capital and maintaining fair and transparent market conditions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.