issuer vs. underwriter

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ruski
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issuer vs. underwriter

Postby ruski » Wed Jul 20, 2011 9:57 am

can anyone explain the differences b/t firms who mainly represent the issuer, and ones who mainly represent the underwriter? i assume it's better to represent the underwriter as all the v5 all do, but why exactly is this preferable?

whats the difference in having a long standing relationship with an underwriter or one with the issuer?

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Re: issuer vs. underwriter

Postby Anonymous User » Wed Jul 20, 2011 10:03 am

Issuer is the company issuing an equity/bond offering. Essentially, they're the one whose securities are being sold into the market. The underwriter is "distributing" those securities. The structure of each transaction is different, but the underwriter generally also has skin in the game when it comes to getting the best price possible for the client (the issuer). A relationship with the underwriter is better than a relationship with the issuer because underwriters will do many, many transactions, while issuers won't. The issuer is typically a big corporation that wants to raise capital. The underwriter is providing the underwriting service, and does so for a whole bunch of corporations, so it's a steady stream of business, unlike the issuer.

While the issuer can be any number of big companies, the underwriter is a securities firm, so those include places like Goldman, Morgan Stanley, Barclays, JPMorgan, Citi, UBS, etc...

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Re: issuer vs. underwriter

Postby Anonymous User » Wed Jul 20, 2011 10:04 am

Underwriter also does the heavy lifting on these deals-- the issuer is their client. I'm still in school, so I don't know much about the legal end, but I would guess the issuer's legal team is there to make sure the underwriter doesn't screw up.

ruski
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Re: issuer vs. underwriter

Postby ruski » Wed Jul 20, 2011 10:09 am

maybe i should rephrase. i know what each one is and does, but WHY is it so much preferable to represent the u/w than the issuer. you mentioned that the udnerwriter will bring in more work, but that's not necessariliy true. representing a huge issuer and developing a relationship with them can bring in more work too - maybe not more securities work, but work for litigation, regulatory issues, etc. especially if these issuers are all huge f500 companies all of which have a host of legal issues to work out.

and the issuers team is defintely not there to supervise the underwriters team btw.

bdubs
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Re: issuer vs. underwriter

Postby bdubs » Wed Jul 20, 2011 10:21 am

ruski wrote:maybe i should rephrase. i know what each one is and does, but WHY is it so much preferable to represent the u/w than the issuer. you mentioned that the udnerwriter will bring in more work, but that's not necessariliy true. representing a huge issuer and developing a relationship with them can bring in more work too - maybe not more securities work, but work for litigation, regulatory issues, etc. especially if these issuers are all huge f500 companies all of which have a host of legal issues to work out.

and the issuers team is defintely not there to supervise the underwriters team btw.


I don't think that legal relationships are formed in this way. Many times a large company will hire a different firm (i.e. different partner) to represent it in litigation or regulatory issues. A few large companies have tight relationships with law firms across a variety of services, but many farm out specialized work to specialized groups within firms.

For instance, I work with a large pharma company that always uses the same lawyer for their patent litigation (even though this partner has moved firms several times while in their relationship), however they use a different firm to handle their general litigation work.

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Re: issuer vs. underwriter

Postby Anonymous User » Wed Jul 20, 2011 10:27 am

Like I said, I don't really know the legal end, but companies typically won't be going to the same firm for every type of work, even if the same firms will do everything they need done. Just as an example, it's well known that S&C represents Goldman, but Goldman doesn't work exclusively with Sullivan. They'll farm out litigation/criminal work to Wachtell, employment work to another firm, etc. Fortune 500's are the same way-- if they want a merger, they'll go to one place, if they have a labor dispute they'll go to a second, and if they need litigation they'll go elsewhere.

If it were about big companies needing one-stop shops, Williams & Connolly, with no corporate division, would be out of a job in a hurry...

ruski
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Re: issuer vs. underwriter

Postby ruski » Wed Jul 20, 2011 10:48 am

ok so the main plus to representing u/w as opposed to issuers is you get a healthy flow of securities/capital markets work then

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Re: issuer vs. underwriter

Postby Anonymous User » Wed Jul 20, 2011 10:52 am

That'd be my (somewhat educated) guess. Representing a Goldman or a Morgan Stanley when they help companies raise capital is likely to generate a lot more fees than representing, say, Microsoft on the occasion that they decide to issue debt.

Kochel
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Re: issuer vs. underwriter

Postby Kochel » Wed Jul 20, 2011 11:03 am

From the law firm's perspective, representing underwriters typically means a greater number of offerings, which might mean more aggregate fees over time. Issuer's counsel tends to be the law firm that does the company's general securities work, or, for an IPO, the company's general corporate work. Representing issuers, then, is reflective of an ongoing client relationship that is likely generating revenues in other areas (i.e., other corporate transactions for the client, employment representation, etc.).

For any given offering, though, issuer's counsel has the harder job, because they're running the prospectus. Underwriter's counsel reviews prospectus drafts and does diligence, but issuer's counsel typically puts in at least twice the hours.

ruski
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Re: issuer vs. underwriter

Postby ruski » Wed Jul 20, 2011 11:13 am

Kochel wrote:. Underwriter's counsel reviews prospectus drafts and does diligence, but issuer's counsel typically puts in at least twice the hours.


so the v5 guys representing u/w will be working less than the v50 guys representing the issuers? interesting.

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Re: issuer vs. underwriter

Postby Anonymous User » Wed Jul 20, 2011 11:21 am

They're also doing that work a lot more consistently, so even though the fee might be smaller in a given deal, the stream of deals is constant. Morgan Stanley underwrites a LOT more debt/equity offerings than, say, Procter & Gamble issues of either...

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thesealocust
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Re: issuer vs. underwriter

Postby thesealocust » Wed Jul 20, 2011 11:35 am

The under writers tend to be giant banks in NYC, but even the firms that rep them on securities deals often do a lot of issuer work. There is no conscious choice about who to pick, it matters who the client is.

If an Ohio corporation wants to issue debt, it won't be surprising to see Jones Day as issuerKs counsel and a wall street firm for the underwriters. But it's also totally possible that two wall street firms would be on opposite sides of one another.

What it really comes down to is how a firm gets and maintains clients. If the firm has a lot of bank clients it's likely to rep a lot of underwriters, but not because they thumb their nose at issuer work. If a firm has lots of midwestern corporate clients an underwriter isn't likely to phone them up when they have a handful of firms with deep expertise 2 blocks down the street. Etc.

In short, v5 firms rep underwriters because they're in NYC and have a deep history working with the banks, not because it is 'better.' They also do a lot of issuer work.

Check league tables from my oci research thread and you'll see this born out.

Kochel
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Re: issuer vs. underwriter

Postby Kochel » Wed Jul 20, 2011 12:15 pm

ruski wrote:
Kochel wrote:. Underwriter's counsel reviews prospectus drafts and does diligence, but issuer's counsel typically puts in at least twice the hours.


so the v5 guys representing u/w will be working less than the v50 guys representing the issuers? interesting.


Absolutely. Not only is the prospectus drafting time-consuming and complicated, there's also stock exchange work, drafting of agreements and other transaction documents (e.g., capitalization and restructuring docs), obtaining board approvals, working with auditors, etc. Underwriter's counsel will send a junior associate to do diligence, and that takes time, but issuer's counsel sees and reviews every document produced for diligence as well.




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