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.

  1. Back Stop

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

    The price at which publicly issued securities are made available ...
  3. Devolvement

    When the undersubscription of a security issue forces the underwriting ...
  4. Undigested Securities

    A new security issue that remains undistributed due to insufficient ...
  5. Negotiated Underwriting

    A process in which both the purchase price and the offering price ...
  6. Underwriting Agreement

    An underwriting agreement is a contract between a group of investment ...
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  2. Why would a company issue a rights offering?

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  3. What is the cost of a share purchase?

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  4. 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 >>
  5. 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 >>
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