Offering Bonds On the 'Net.Investment bank bond departments, many of which have struggled in recent years, have a new threat to contend with: the Internet. In mid-August, Dow Chemical Co. auctioned a $300 million, five-year bond offering online -- becoming the first industrial corporation to use an online "Dutch auction Dutch Auction An auction where the price on an item is lowered until it gets its first bid, and then the item is sold at that price. Notes: The U.S. Treasury (and other countries) uses a Dutch auction when it sells securities. " that allows investors to bid in real time for both the size and price of bond transactions. The two-hour auction was facilitated by the launch of WR Hambrecht + Co WR Hambrecht + Co. is a full service investment bank with headquarters in New York and San Francisco. It specializes in using its unique auction process called OpenIPO to compete with the traditional methods of larger and more established banks. .'s OpenBook (www.openbook.com), an internet-based Dutch auction platform for the investment-grade bond market. OpenBook "gives investors and issuers a more equitable equitable adj. 1) just, based on fairness and not legal technicalities. 2) refers to positive remedies (orders to do something, not money damages) employed by the courts to solve disputes or give relief. (See: equity) EQUITABLE. and consistent market for bond offerings," said Bill Hambrecht, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of WR Hambrecht. "Institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. get equal access and greater price stability, while issuers benefit from a broader investor base and a more stable after-market. Additionally, everyone can view the price discovery process." Dow was "pleased with the results," said Geoffery E. Merszei, vice president and treasurer. "Providing investors with the ability to directly establish the market clearing price is a stair-step improvement in transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. , which benefits both investors and the issuer." He added: "The use of an Internet-based bond auction allows us to raise funds on a more efficient, less costly basis and provides Dow with access to a broader investor base." Indeed, Dow said that 55 investors participating in the auction were awarded Dow securities in amounts up to $40 million -- far more than the 15 to 20 investors typically allocated bonds in prior offerings of a similar size, said Merszei. OpenBook says its process allows the market to determine bond pricing and allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as , a first in corporate debt issuance. Investors submit their bids and can then watch the real-time book-building process. Once the auction is complete, Hambrecht's system determines the final allocation -- with bonds awarded to those bidding at or below the spread clearing all the bonds. |
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