Bond issuance
Financial institutions, usually an investment bank, may assist a firm to issue bonds. This is known as underwriting and they generally guarantee to the issuer that the entire issue will be sold.
They then try to sell the bonds to investors, taking the risk that they may not be able to sell the whole issue. Alternatively they may act as a distribution agent for the issuer, trying to sell on a bestefforts basis, but not guaranteeing the sale. A third possibility is that the investment bank organises a private placement where one or more large financial institutions are lined up to receive the whole of a forthcoming bond issue. Companies, by paying commission to the financial institutions, benefit from both their professional experience and skill in selling issues of bonds and their reputation with investing institutions.
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