Re-Offer Price
What Is a Re-Offer Price?
A re-offer price is the price at which the underwriting syndicate of a debt issue re-sells the bonds or IPO securities to public investors in the wake of receiving them in the primary market directly from the issuers. The syndicate will purchase the bonds for a predefined amount from the responsible firm and re-offer the bonds or securities to the public, generally at a different price.
Re-Offer Price Explained
An underwriting investment bank might work with a debt issue by agreeing to directly purchase the bonds in general or securities at a cost at or below face value, in what is called a primary market transaction. Having the underwriters purchase the entire bond issue, rather than passing the sale promptly onto the public, removes the company's risk of not selling the entire issue. The investment banker will then re-sell the bonds to public investors at a re-offer price on the secondary market, which might be above (at a premium) somewhat below (at a discount) par value.
In a serial issue, generally common to municipal general obligation (GO) bonds, the principal bonds to mature are frequently at a premium with a higher coupon rate. The last bonds to mature in the offering are some of the time sold at a discount, yet carry a lower coupon rate.
How Re-Offer Prices Work
Before it sells bonds or securities to the public, a company first requirements an investment banker to endorse the issue. The occupation of the underwriter is to raise capital for the responsible company. The underwriter achieves this by purchasing the securities from the responsible partnership at a predetermined price and reselling them to the public for a benefit. The re-offer price is that resale price.
Generally speaking, a single investment banking firm plays the lead job in setting up an IPO or bond issue. This lead firm is known as the overseeing underwriter, and it frequently forms a underwriting syndicate to participate in the sale. This syndicate, thusly, may gather an even bigger group of agent dealers to assist with the distribution of the new issue. Their profits come from the advisory fee, which is a percentage of the offering size, and the difference between the purchase price and the re-offer price.
Fixed Price Re-Offers
Fixed price re-offer is a practice of underwriting syndicates firmly upheld in the U.S., where underwriting investment banks agree to sell bonds to investors for somewhere in the ballpark of an agreed price. This pricing scheme is generally used to sell to institutional investors. The fixed price is generally accessible for 24 hours after the offering begins. This practice ensures transparency in the primary market. Investors realize they can't get the bonds less expensive from one more dealer while the issue is in syndication. For the issuer, the fixed price re-offer method enjoys the benefit of lower underwriting fees.
Features
- Banks and different securities underwriters might agree to buy up an issuer's all's offering, normally at a bulk discount to face value.
- The bank or underwriter then, at that point, may later endeavor to sell some or all of that offering on the secondary market at the re-offer price.
- The re-offer might be higher, lower, or a similar price as the initial offering price contingent upon prevailing market conditions and the financial wellbeing of the issuer around then - albeit the goal for the underwriter is to get a higher price than what they paid directly.
- The re-offer price is that price point at which an investment bank offers bonds or different securities that it has itself purchased directly from an issuer to the public.
