Backstop Purchaser

DEFINITION of 'Backstop Purchaser'

An entity that agrees to purchase all the remaining, unsubscribed securities from a rights offering. The backstop purchaser provides security to the issuing firm by guaranteeing that all of the newly issued shares will be purchased, allowing the company to fulfill its fundraising requirements.

BREAKING DOWN 'Backstop Purchaser'

Just as a backstop in baseball prevents a ball from leaving the playing field, a backstop to an offering insures that the funds required by the firm are raised.

Backstopping can cost companies large fees when participating in a rights offering. Similar to an underwriter, the backstop purchaser takes on the risk of issuing new securities and is paid a premium for compensation. For example, when Berkshire Hathaway acted as a backstop purchaser for USG Corporation, it earned a non-refundable fee of $67 million for the service.

RELATED TERMS
  1. Back Stop

    The act of providing last-resort support or security in a securities ...
  2. Unsubscribed

    Newly issued securities that have not seen much interest, or ...
  3. Layoff

    1. When a company eliminates jobs regardless of how good the ...
  4. Offering Price

    The price at which publicly issued securities are made available ...
  5. New Issue

    A reference to a security that has been registered, issued and ...
  6. Underwriting Group

    A temporary association of investment bankers who wish to purchase ...
Related Articles
  1. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  2. Rights Of Common Stockholders

    As an owner of common stock, investors are owners of the corporation. As such, investors have certain rights that are granted to all common stock holders. Preemptive Rights As a stockholder, ...
  3. Options & Futures

    Understanding Rights Issues

    Not sure what to do if a company invites you to buy more shares at discount? Here are some of your options.
  4. Professionals

    New Issue Market

    FINRA Series 6 Exam Study Guide - New Issue Market. In this section: IPOs, underwriter and several kinds of underwriting agreements.
  5. Professionals

    D. Types of Dividends

    Cash A cash dividend is the most common form of dividend, and it is one that the test focuses on. A corporation will send out a cash payment in the form of a check directly to the stockholders. ...
  6. Professionals

    Rights

    Cash-strapped companies can turn to rights issues to raise money when they really need it.
  7. Professionals

    C. Underwriting Corporate Securities

    Once a business has decided that it needs to raise capital to meet its organizational objectives, they must determine how to raise the needed capital. Most corporations at this point will hire ...
  8. Professionals

    Types Of Underwriting Commitments

    Firm Commitment In a firm commitment underwriting, the underwriter guarantees to purchase all of the securities being offered for sale by the issuer regardless of whether or not they can sell ...
  9. Professionals

    Issuing Corporate Securities

    Series 62
  10. Professionals

    Issuing Corporate Securities

    Series 55
RELATED FAQS
  1. 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 >>
  2. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ... Read Answer >>
  3. What securities does the primary market deal with?

    Find out what kinds of securities are traded on the primary market, including who can participate in trading and the basics ... Read Answer >>
  4. What is the cost of a share purchase?

    Find out how the total price of a share purchase is dictated by the current stock price and the fees the brokerage company ... Read Answer >>
  5. What is the long-term sector outlook for financial services?

    Read about a few potential threats to the remarkable levels of growth in the financial services sector that have occurred ... Read Answer >>
  6. How are rights distributed in a rights offering?

    Learn about stock rights offerings that companies may make, and discover how the rights are distributed among the company's ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center