Back Stop

AAA

DEFINITION of 'Back Stop'

The act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. A company will try and raise capital through an issuance and to guarantee the amount received through the issue, the company will get a back stop from an underwriter or major shareholder to buy any of the unsubscribed shares.

INVESTOPEDIA EXPLAINS 'Back Stop'

For example, in a rights offering you might hear "ABC Company will provide a 100% back stop of up to $100 million for any un-subscribed portion of the XYZ Company rights offering." If XYZ is trying to raise $200 million but only raises $100 million through investors then ABC Company will purchase the remainder.

RELATED TERMS
  1. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  2. Capital

    1) Financial assets or the financial value of assets, such as ...
  3. Backlog

    A build-up of work that needs to be taken care of. The term "backlog" ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  5. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  6. Underwriting

    1. The process by which investment bankers raise investment capital ...
Related Articles
  1. Analyst Recommendations: Do Sell Ratings ...
    Investing Basics

    Analyst Recommendations: Do Sell Ratings ...

  2. Brokerage Functions: Underwriting And ...
    Brokers

    Brokerage Functions: Underwriting And ...

  3. Interpreting A Company's IPO Prospectus ...
    Fundamental Analysis

    Interpreting A Company's IPO Prospectus ...

  4. 5 Tips For Investing In IPOs
    Investing

    5 Tips For Investing In IPOs

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center