Equity Commitment Note (ECN)

What Is an Equity Commitment Note (ECN)?

An equity commitment note is a type of mandatory convertible debt issued by a bank that can be exchanged for stock at maturity. The note is repayable from the sale of stock by its issuer.

It is essentially a type of corporate debt that comes with restrictions on the borrower that mandate how the money to repay the debt will be raised.

Key Takeaways

  • An equity commitment note is a type of mandatory convertible bond issued by a bank or other lending institution.
  • The note can be exchanged for stock at maturity.
  • Essentially, an equity commitment note is a corporate bond.

Understanding the Equity Commitment Note (ECN)

The equity commitment note is a form of corporate debt. It is redeemed by the sale or issue of securities at a future date by the bank or lending institution that issues it.

An equity commitment note differs from an equity contract note in that the investor is not required to purchase the securities in order to redeem the note. The equity commitment note can be redeemed at a later time through the sale of either common or preferred stock.

In the United States, the Federal Reserve Bank sets a maximum maturity of 12 years and requires that the issuing company fund one-third of the equity every four years.

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  1. Federal Reserve Bank of New York. "Circular No. 9374: Amended Criteria for Determining Primary Capital Status of Mandatory Convertible Securities," Pages 2 and 3. Accessed Dec. 5, 2020.