What is a bought deal in the context of securities offerings?

What is a bought deal in the context of securities offerings?

• A. A method for issuing public offerings
• B. An offering where an underwriter buys all shares for resale
• C. A distribution of shares without a prospectus
• D. A secondary market strategy

Answer: (B)

A bought deal refers to a specific structure in securities offerings where an underwriter agrees to purchase the entire issuance of shares or securities directly from the issuer, with the intention of reselling them to investors. This arrangement allows the issuer to secure funds quickly, as they do not need to wait for investors to buy the securities on the open market. The underwriter assumes the risk of selling the securities to the public, which is a significant aspect of the bought deal.

This approach is beneficial for issuers looking for speed and certainty in funding, while underwriters often benefit from a fixed commission and the opportunity to manage the distribution of the shares. It differs from other methods of issuing securities, such as traditional public offerings, where the underwriter does not purchase the entire amount upfront. In a bought deal, the transaction is typically executed with limited due diligence and can provide a quicker path to market, which is why it's seen as a distinct form of placement in the securities market.