Back Stop

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.

BREAKING DOWN '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.

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