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Simple English definitions for legal terms
best-efforts underwriting
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A quick definition of best-efforts underwriting:
Best-efforts underwriting is when an investment banker helps a company sell their stocks to the public, but they don't guarantee that all the stocks will be sold. The investment banker acts as an agent for the company and tries their best to sell as many stocks as possible. If there are any unsold stocks, they are not issued. This is different from firm-commitment underwriting, where the investment banker agrees to buy all the stocks and is financially responsible for any unsold stocks. Standby underwriting is another type of underwriting where the investment banker agrees to buy any unsold stocks after the public offering for a fee.
A more thorough explanation:
Best-efforts underwriting is a type of underwriting where an investment banker agrees to help sell a new issue of securities to the public, but does not guarantee the sale of all the securities. The underwriter acts as an agent for the issuer and any unsold securities are not issued.
- An investment bank agrees to help sell a new issue of stocks for a company. The bank will use its best efforts to sell the stocks to the public, but does not guarantee that all the stocks will be sold.
- A municipality wants to issue bonds to finance a new project. An investment bank agrees to help sell the bonds to investors, but does not guarantee that all the bonds will be sold.
These examples illustrate how an investment bank can help an issuer sell securities to the public through best-efforts underwriting. The investment bank will use its expertise and resources to market and sell the securities, but the success of the sale ultimately depends on market conditions and investor demand.