Back Stop

What is a 'Back Stop'

A back stop is 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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RELATED FAQS
  1. Who facilitates buying and selling on the primary market?

    Learn more about the primary marketplace -- home of initial public offerings -- and the major players that make buying and ... Read Answer >>
  2. Why would a company issue a rights offering?

    Understand more about a rights offering, and learn the most common reasons a company might have to issue a rights offering, ... Read Answer >>
  3. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number ... Read Answer >>
  4. What is the difference between a stop and a market order?

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  5. Do underwriters make guarantees to sell an entire IPO issue?

    Underwriters represent the group of representatives from an investment bank whose main responsibility is to complete the ... Read Answer >>
  6. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Answer >>
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