Starwood Property Trust, Inc (NYSE:STWD) announces public offering price
On Thursday, Starwood Property Trust, Inc (NYSE:STWD) announced the pricing of the underwritten public offering of $400,000,000 aggregate principal-amount of its 4.00 percent Convertible Senior Notes which are due in 2019 for total gross-proceeds of $400M. Underwriters will have a 30-day option to buy upto an additional $60,000,000 aggregate principal-amount of these Notes from STWD to cover the over-allotments, in case there are any.
Who are Underwriters?
Underwriters are generally investment banks that have IPO specialists in their employ. The bankers ensure that the company satisfies all mandatory regulatory requirements, like filing with appropriate bodies as well as fee deposits. It also makes sure that the public has access to all the mandatory financial data. Apart from this, and probably most importantly, underwriters contact large prospective stock-buyers such as insurance companies and mutual funds who have massive amounts of money to invest. The underwriter runs a quick check on the pulse of prospective buyers. Post that, they recommend an IPO price to the company and this is the price at which the shares will eventually be sold. Too high a price might leave a company with unsold stock, while too-low a price will mean a revenue loss from the sale of stock.
The Underwriters Guarantee
The underwriters generally provide the company with a guarantee, to sell a certain amount of stock during the public offering process. In the event that the underwriters are unsuccessful in convincing prospective investors to buy a certain number of shares, they are obligated to purchase the surplus themselves. In order to avoid committing huge quantities of money to any failed IPO, the underwriters have to work very hard to sell all the available shares. In case the underwriters end-up with a large amount of stock, which it was compelled to buy from the issuing company, all these shares will then be sold by it in the open market. Sales such as these have to be handled with great deal of caution, as the share price can be dragged down suddenly due to the influx of shares which had have an adverse effect on the issuer as well as the underwriters.