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25 Cards in this Set
- Front
- Back
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When management gets the approval of the board of directors to issue public securities, they must make available what information?
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$ amount,
type of security underwriting syndicate / selling group are put together; underwriting contract is (1) negotiated or (2) sent out for bidding (i.e., competitive); board approval obtained. |
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When the firm files a registration statement with the SEC to issue public securities, what information must be included? Also, what are the exemptions to SEC registration?
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Financial information
Financial history Existing business plan Proposed financing, future plans. The purpose is to decrease asymmetric information. Exemptions from filing an SEC registration statement: Loans that mature within 9 months. Issues of less than $5 million. |
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What happens during the 20 day cooling off period for issuing public securities?
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Firm may distribute Preliminary Prospectus, or Red Herring.
Verbal orders taken, but NO security sales during this period. Road shows, bookbuilding (interest indications), demand schedule determined. Tombstone advertisements. SEC may send Letter of Comment suggesting changes. 20 day waiting period starts anew AFTER changes by firm have been made. |
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What must be included in the firm's registration statement as of the Effective Date?
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A final prospectus must accompany (whichever comes first):
delivery of securities Confirmation of sale Tombstone advertisements are used during and after the waiting period. |
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What are the five steps to firm's issuing public securities?
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1) Firm gets approval of board of directors
2) Firm files registration statement with SEC 3) Cooling off period 4) If necessary, firm files an amended registration statement 5) Effective Date |
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What defines a private issue?
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Requires less than 12-35 investors; No SEC registration required.
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What defines a rights offer?
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Existing SHers are offered first (NOT looking for new investors).
Almost all debt and most US equity is sold in general cash offerings. |
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____ must be a cash offer, _____ can be cash or rights, because ______
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IPO, SEO, IPO has no shareholders already
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IPOs and SEOs are both primary market events. this means...
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(1) Corporation is the seller and thus,
(2) Corporation receives the $ raised. |
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What are the three methods for issuing securities via cash offer?
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1) Firm commitment
2) Best Efforts 3) Dutch Auction |
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Define a firm commitment cash offer
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1) most common type of cash offer in US
2) IBank buys securities outright: IBank profit = retail p – wholesale p. IBank accepts selling risk! (firm transfers selling risk to IBank!) The IBank’s compensation is the spread or discount. (also sometimes compensated with warrants or stock |
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Define a green shoe option in a firm commitment cash offer
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For 30 days (aftermarket) 15% of newly issued shares,
IBank exercises if market p > offer p. Stated reason: to cover excess demand and oversubscription. Green Shoe is a benefit to underwriter at expense of issuer (options: zero sum game) Underwriting group or syndicate (with lead manager or principal manager) Share selling risk Help sell the issue |
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Define a best efforts cash offer
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IBank does NOT buy securities; acts simply as an agent.
Compensation is commission for each share sold. Selling risk remains with issuer. Issue is withdrawn if cannot sell at offering price, but would-be issuer still pays substantial flotation costs, yet does NOT raise any capital. More common with IPOs (due to increased risk vs. an SEO). Some best efforts offerings do NOT use an UW. (If UW used, he will suggest a price). |
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Define a dutch auction cash offer
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Distribution made at clearing price on a pro-rata basis to all those whose bid exactly meets the clearing price. Note that everyone who bid at least the clearing price pays ONLY the clearing price, NOT their bidding price.
Direct expenses of best-efforts UW and firm-commitment UW are of the same magnitude. |
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What is a quiet period?
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From well before the offering to 40 calendar days following IPO. If quiet period is violated by either firm or underwriter (i.e., analyst), then the issue can be delayed if it is not yet offered to the public.
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What are the two methods for selecting an underwriter?
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1) Competitive
2) Negotiated |
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Define the competitive method of selecting an underwriter?
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(highest bidder underwriter)
Used only with largest of issues with large, well-known firms. lack of asymmetric info for large, well-covered firms. |
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Define the negotiated method of selecting an underwriter?
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MOST COMMON) firm typically does NOT negotiate with multiple UWs concurrently (lack of competition)
Probably higher issuing costs, but it may be justified due to increased due diligence required to ensure successful offering. Possibly more attractive for smaller firms, where asymmetric information may be a concern. |
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Define certification in the aid issuance of securities
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with privileged info, can confirm intrinsic value. Reputation of IBank, their most precious asset, is at stake. Prevents Adverse Selection.)
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What is the single most difficult task in in underwriting an IPO?
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Pricing correctly
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What are the two methods for selecting an underwriter?
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1) Competitive
2) Negotiated |
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Define the competitive method of selecting an underwriter?
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(highest bidder underwriter)
Used only with largest of issues with large, well-known firms. lack of asymmetric info for large, well-covered firms. |
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Define the negotiated method of selecting an underwriter?
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MOST COMMON) firm typically does NOT negotiate with multiple UWs concurrently (lack of competition)
Probably higher issuing costs, but it may be justified due to increased due diligence required to ensure successful offering. Possibly more attractive for smaller firms, where asymmetric information may be a concern. |
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Define certification in the aid issuance of securities
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with privileged info, can confirm intrinsic value. Reputation of IBank, their most precious asset, is at stake. Prevents Adverse Selection.)
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What is the single most difficult task in in underwriting an IPO?
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Pricing correctly
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