Vol.1 Chapter 1 Flashcards
Private placements [small]
Private way to issue [sell] securities to small number of investors
(not public investors)
Not regulated by the SEC
Negative covenant [agreement]
restricts certain actions of the issuer
Positive covenants
requires certain standard, such as providing periodic reports
Financial covenants
requires financial variables
Maintenance covenants
The financial requirements must be met periodically
Incurrence covenants
The requirements must be met when the event occurs [deadline]
Public Offerings;
public way to issue [sell] securities to public investors
Regulated by SEC
Investment Banker
firm that trade stocks and bonds to the public, underwrite IPO
Merchant Bank
investment bank that not only invest its own capital, but also raise capital from the public
Best efforts;
investment banker [intermediary] only sells new securities for the issuer that are presold to investors
(for small or new companies)
Firm Underwritings;
investment banker monitors market conditions and the demand for the newly issued stock
· Risker than a best efforts offering because the banker will have to buys the entire issue and reselling it to the public at
Fixed Price;
investment banker sets a price and then solicits subscriptions from investors
Bookbuild underwritings;
investment banker preliminary offering documents and specifics a price range rather than a single price
Direct Public Offering;
an offering of new equity directly to the public without the aid of an investment banker.
Right offerings;
an offering made directly to a firm’s current shareholders, giving them the right to purchase new securities are a discounted price
Auctions
Used to sell equities, especially fixed-income securities
There are no underwriters, there is no spread. Instead, brokers charge commissions
Syndicate;
group of investment bankers, underwrites most large offerings
Lead underwriter
an investment banker with primary responsibility for a new securities offering often as head of a syndicate.
“leaving money on the table”
funds foregone by a firm that has an IPO that is substantially underpriced so that there is a large first day return.
road show
an organized series of presentations in various cities in which a firm’s officers and investment bankers meet potential investors.
Greenshoe option;
Underwriter gives an investment banker the right to buy additional shares from a firm typically for 30day period after offering day
Shorting selling
the sale of an asset not owned, typically in hopes of profiting from a price decline
Special
a stock that is difficult to borrow.
Naked short
short sale made without any intention of borrowing stock deliver
Short sale against the box;
the short sale of a security that the seller owns, but that is not available for immediate delivery
dutch auctions
a type of auction for new securities in which
bidders indicate the price and quantity they are willing to buy at that price,
specialness
the difference between the typical rebate rate and the rebate rate on a given loan.
special types of short sales
naked short
Short sale against the box
syndicate manager
the firm that originates the deal for a new issue and is in direct contact with the issuer.
