A standby commitment is a contract between a stock-selling company and a financial institution. The financial institution agrees to purchase any remaining unsold stocks after the public offering, in exchange for a fee. This arrangement helps the company guarantee the sale of all their stocks and secure the required funds.
A standby commitment, also known as a standby underwriting agreement, is a contract between an issuer of securities and an underwriter. The underwriter agrees to purchase any remaining unsold shares or bonds after a public offering for a fee. For example, if ABC Company plans to issue 1 million shares of stock and only sells 900,000, the underwriter, such as XYZ Underwriters, will buy the remaining 100,000 shares. This arrangement provides a safety net for the issuer, ensuring they can sell all their securities and raise necessary funds, while the underwriter takes on the risk of buying any unsold securities in exchange for a fee.
A standby commitment is a legal agreement between a lender and a borrower, where the lender agrees to provide financial support or credit to the borrower in case of a specific event or circumstance.
Standby commitments are often triggered by events such as the borrower’s default on a loan, failure to meet certain financial obligations, or inability to secure financing from other sources.
Unlike a traditional loan, a standby commitment does not involve an immediate disbursement of funds. Instead, it serves as a guarantee or assurance that the lender will provide financial support if certain conditions are met.
In most cases, a standby commitment cannot be revoked or canceled once it has been agreed upon by both parties. However, specific terms and conditions may vary depending on the agreement.
For borrowers, a standby commitment provides a safety net in case of financial difficulties or unforeseen circumstances. It can also help improve their creditworthiness and access to other forms of financing. Lenders benefit from standby commitments by earning fees for providing the guarantee and potentially gaining a long-term customer.
Yes, standby commitments are legally binding agreements that are enforceable in a court of law. Both parties are obligated to fulfill their respective obligations as outlined in the agreement.
In some cases, standby commitments can be transferred to another party with the consent of all involved parties. However, this transferability may be subject to certain restrictions or conditions outlined in the agreement.
If the borrower fails to meet the conditions specified in the standby commitment, the lender may have the right to demand immediate repayment of any outstanding amounts or take legal action to recover the funds.
Standby commitments can be used for various financial obligations, such as loans, bonds, or other forms of credit. However, the specific terms and conditions may vary depending on the nature of the obligation.
To obtain a standby commitment, you would typically need to negotiate and enter into an agreement with a lender or financial institution. It is advisable to consult with legal and financial professionals to ensure that the terms of the commitment align with your specific needs and circumstances.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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