Competitive Bid Option

AAA

DEFINITION of 'Competitive Bid Option'

A form of the commercial loan syndication where banks submit competing bids on a loan. They can also sell their portion of the participation in a loan to other parties. The borrower has a choice of banks to choose from, and will generally pick the lender with lowest rates and/or fees. In most cases, the leading bank in the syndicate allocates the majority of the actual loan balance to other lenders and only keeps a small percentage of the loan for itself.

INVESTOPEDIA EXPLAINS 'Competitive Bid Option'

Competitive bid options are usually priced at just above the lender's cost of funds, or an index such as the LIBOR. The competitive bid process for commercial and industrial loans with U.S. banks closely resembles the tender panel process in the Eurocredit market. In this arrangement, several banks bid to buy short-term corporate notes via a revolving underwriting facility.

RELATED TERMS
  1. Competitive Bid

    A step in the initial public offering process whereby an underwriter ...
  2. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  3. Loan Syndication

    The process of involving several different lenders in providing ...
  4. Underwriting

    1. The process by which investment bankers raise investment capital ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Automated Underwriting

    A computer-generated loan underwriting decision. Using completed ...
Related Articles
  1. Basics Of Federal Bond Issues
    Bonds & Fixed Income

    Basics Of Federal Bond Issues

  2. How Bond Market Pricing Works
    Bonds & Fixed Income

    How Bond Market Pricing Works

  3. Buy Treasuries Directly From The Fed
    Active Trading

    Buy Treasuries Directly From The Fed

  4. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center