Capital MarketsQuestion 305 of 398
Under a best-efforts underwriting, what happens to shares that the syndicate cannot sell?
a.The lead underwriter must purchase them personally
b.They are automatically sold to the Federal Reserve
c.They are returned to the issuer, which does not receive proceeds for them
d.They must be repurchased by existing shareholders
Explanation
In a best-efforts underwriting, the underwriter acts only as an agent and is not obligated to buy any unsold shares. Any securities the syndicate cannot place are returned to the issuer, so the issuer bears the risk of an undersubscribed offering.
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