What is a 'Bought Deal'
A bought deal is a securities offering where an investment bank commits to buy the entire offering from the client company. A bought deal eliminates the financing risk for the company, which is able to ensure that it raises the intended amount of funds from the securities offering; however, the client firm will likely get a lower price by taking this approach.
BREAKING DOWN 'Bought Deal'
A bought deal is more risky for the investment bank, because it must then try to sell the securities to other investors. The investment bank takes all of the risk that the securities may not be able to be sold, or more commonly, that they may lose value before they can be sold, resulting in a net loss. To offset this risk, the investment bank often negotiates a significant discount when buying the offering from the client. If the deal is large, an investment bank may team up with other banks and form a syndicate so that each firm bears only a portion of the risk.