The mechanics of a bought deal are that ________.

Question

Quizplus · Accepted Answer

In a bought deal, the underwriter (lead manager or group of managers) offers a firm bid to purchase a specific amount of securities at a pre-determined price. The issuer accepts the bid and the deal is sold to the underwriter. The underwriter then has the option to distribute the securities to its clients or sell them to other investment banking firms for distribution to their clients. Option A is incorrect because the interest (coupon) rate and maturity date are typically announced at the time the deal is priced, not later. Option B is also incorrect because the issuer must accept the bid before the deal is sold to the underwriter. Option C is incorrect because the underwriter does not buy the deal if the bid is rejected; instead, the issuer would likely seek other underwriters to purchase the securities.

The Mechanics of a Bought Deal Are That ________