Bought Deal Law and Legal Definition

A bought deal is a new share issue in which the underwriter buys all the shares and resells them. A bought deal occurs when an underwriter purchases securities from an issuer before a preliminary prospectus is filed. The advantage of the bought deal is that investors do not have to worry about financing risk.

The advantages of the bought deal from the underwriter's perspective include:

1) Bought deals are usually priced at a larger discount to market than fully marketed deals, and thus may be easier to sell; and

2) The issuer/client may only be willing to do a deal if it is bought.

The disadvantage of the bought deal from the underwriter's perspective is that they have to hold the securities, if they cannot sell those securities, which means the underwriter loses money.