Underwriting arrangements

Types of arrangement

What types of underwriting arrangements are commonly used?

Underwriting agreements for Austrian transactions usually follow international capital market practice and include the (joint) lead managers acting also for the other underwriters, the issuer and the selling shareholders, if any. Most underwritings are best effort underwritings including market standard book-building procedures (in most cases for about two weeks, in accelerate book buildings within one day). In a book-building the price for and the final amount of securities offered is determined on the basis of investors’ bids before the underwriting takes place. After the book-building process, the final amount of securities and their price is agreed between the underwriters and the issuer, leading to an underwriting commitment of the underwriters.

In contrast, in a few recent Austrian transactions ‘hard underwritings’ were applied. In this scenario, the underwriters - subject to certain requirements - provide a firm commitment for a portion of securities offered, even if the hard-underwritten amount of shares eventually cannot be sold to investors in the offering. In general, nevertheless, best effort underwritings are still market practice and frequently used for most transactions.

Typical provisions

What does the underwriting agreement typically provide with respect to indemnity, force majeure clauses, success fees and overallotment options?

Indemnities are typically provided for losses, claims, damages or liabilities that arise out of or in connection with any breach of the issuer’s representations and warranties. Further, the issuer (or a selling shareholder, if applicable) frequently indemnifies the underwriters against claims in relation to any untrue statement of material facts contained in the prospectus or any omission of a fact required to be stated therein.

Underwriting agreements usually include contractual rights of termination, if one or more of the conditions set out in the agreement is not satisfied or cannot be satisfied as well as in the event of a material adverse change (such term is frequently defined and constitutes a nomenclature). Material adverse change events include events of force majeure, significant market disruptions and serious deteriorations in the issuer’s financial condition or operations. Underwriters usually receive a portion of the respective gross proceeds from the offering as aggregate commission. Success fees are negotiable and in most cases are paid by the issuer (or the selling shareholder, if applicable) at their full discretion.

Overallotment options are typically agreed upon where the underwriters undertake stabilisation activities in accordance with the Regulation 2014/596/EU (Market Abuse Regulation (MAR)).

Other regulations

What additional regulations apply to underwriting arrangements?

Usually, equity offerings require the overall amount of the underwriting commission and the placing commission to be disclosed in the prospectus.