ABSTRACT
One of the issuer's primary goals in any public debt offering is to borrow needed funds at the lowest possible cost. A major cost component of public debt issuance is the underwriter's compensation, which usually takes the form of the underwriting spread. The amount of the underwriting spread poses more of a concern to issuers offering debt through negotiated rather than competitive sale. In a competitive sale, the bonds are awarded to the underwriter offering the lowest qualifying bid, regardless of the level of underwriting spread which is imbedded in the bids. The underwriting spread is defined as the difference between the price at which an underwriter purchases bonds from an issuer and the price at which the bonds are resold to investors. The spread is where the underwriter recoups the costs of providing investment banking services and derives its profits. The four components of the spread are management fee, expenses, underwriting fee, and takedown.
