Bond Purchase Agreement
As with a competitive bid, the syndicate in a negotiated sale will mail a preliminary official statement to potential investors in an effort to solicit their business.
A negotiated sale, however, offers more flexibility with regard to setting and changing the sales date or the structure of the issue in response to market changes. Preliminary prices may be revised upward or downward as the proposal takes shape. An issuer may advance or delay the sale date in an effort to get the best possible terms.
When the issuer and underwriters agree on a set of proposed interest rates, the underwriters will release the pricing to their clients and allow them a certain timeframe in which to enter orders. During this order period, which, like the order period for a competitive bidding, can run from one hour to five days, the underwriter will monitor the flow of orders. If the issue becomes oversubscribed too quickly, it may recommend lowering the interest rates. If the issue is selling slowly, it may recommend a higher set of interest rates.
Once the issuer and underwriters agree on a final price, they enter into a bond purchase agreement, which establishes the final terms of the bond sale. The bond purchase agree