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. Backstop Purchaser

    An entity that agrees to purchase all the remaining, unsubscribed ...
  4. Subsequent Offering

    An offering of additional shares after the issuing company has ...
  5. Rights Offering

    An issue of rights to a company's existing shareholders that ...
  6. Backlog

    A build-up of work that needs to be taken care of. The term "backlog" ...
RELATED FAQS
  1. How can investors influence the c-suite?

    Investors in publicly traded firms can influence C-suite executives by exercising voting rights or engaging in investor activism. ... Read Full Answer >>
  2. What is the difference between CI (competitive intelligence) and competitive analysis?

    The difference between competitive intelligence and competitive analysis is that competitive intelligence refers to the understanding ... Read Full Answer >>
  3. Why is social responsibility important to a business?

    Social responsibility is important to a business because it demonstrates to both consumers and the media that the company ... Read Full Answer >>
  4. Why is it less than ideal for a CEO of a company to also hold the position of COO?

    When it comes to executive-level positions within an organization, assigned titles and the roles associated with each can ... Read Full Answer >>
  5. What are the advantages and disadvantages of preference shares?

    Preference shares carry a number of benefits for both companies and investors. The chief benefit for shareholders is that ... Read Full Answer >>
  6. How does a merger affect the shareholders?

    A merger affects the shareholders of both companies in different ways and is influenced by several factors, including the ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Analyst Recommendations: Do Sell Ratings Exist?

    Analyst reports can be an investor's best friend - but without knowing how to read them, you won't be able to fully utilize them.
  2. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  3. Fundamental Analysis

    Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  4. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  5. Investing Basics

    IPO Lock-Ups Stop Insider Selling

    Ownership plays a key role when companies go public. Find out how.
  6. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  7. Investing Basics

    Explaining Rights Offering

    A rights offering is an offer by a company to its existing shareholders of the right to buy additional shares in proportion to the number they already own.
  8. Investing Basics

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
  9. Investing Basics

    What is a Share?

    A share – also called a stock -- is a unit of ownership in a corporation or financial asset.
  10. Investing Basics

    Explaining Pro-Rata

    Pro-rata is a term meaning a fraction of a whole based on a relationship to the whole. Proportionate allocations are made pro-rata.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center