6.1.3. Underwriting Process: Pre-Filing Period
After an issuer decides to proceed with an offering of new securities, it will typically begin the process of selecting an underwriter to assist with the issue, a process that involves writing a registration statement and prospectus, both of which will be filed with the SEC.
Letter of intent and due diligence. With the issuer’s selection of an investment bank to underwrite the offering, both parties will sign a non-binding agreement called a letter of intent (LOI). The letter of intent is a tentative agreement between the two parties, setting out the basic terms of their relationship and the terms of the offering. Once a letter of intent has been signed with the lead underwriter, an organizational meeting will kick off the process, in which the parties will discuss the terms and structure of the offering, propose a registration timetable, and assign among themselves certain responsibilities and tasks. The underwriter may invite other investment banks to help with the offering. If other investment banks do join the process, the collection of investment banks is called a syndicate. The underwriter will also help the issuer with the preparation of the registration statement for the offering.
The letter of intent also allows the investment bank to conduct due diligence on the issuer before agreeing to take on the financial responsibility of the offering. Due diligence typically involves examining the issuer’s books and records to evaluate its financial viability and assessing the state of the market for the new issue. The investment bank will look for any evidence that the issuer’s securities might not be a good inves