67. Underwritten placings are the most common form of Eurobond distribution. Usually bonds are underwritten after close of business the night before the issue is launched. The underwriter's commitment is to underwrite the bonds at a given spread. The price of the bonds, based on that spread over a reference Gilt, is fixed at an agreed time some hours after the launch is announced.
68. At launch, the underwriter(s) offer the bonds to investors usually at the spread at which they are committed. On pricing, the sale is formalised and the bonds are paid for on the closing date, maybe up to three weeks from launch date. Any unsold bonds are purchased at the issue price by the underwriter. The underwriter is paid a fee which is deducted from the proceeds.
69. For a long dated issue (15 years +), the fee is usually 5/8% of funds raised and ½% at 10 years, although sovereign and supranational issuers of the calibre of EIB can obtain better rates. Via this route, the borrower is guaranteed funds. However, he is exposed to Gilt market risk from the signature of the underwriting agreement to the time the price is fixed, usually only a few hours. To avoid this, a bank will sometimes offer to underwrite a fixed price. In this case, the borrower is transferring market risk to the underwriter who will charge for this. This type of underwriting (a "bought deal") is usually only used for smaller issues, further tranches of existing bonds or arbitrage driven transactions where an associated swap is involved.