BROWSE

Backstop Purchaser

What is '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.

Explaining '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.


Further Reading


Government Intervention through an Implicit Federal Backstop: Is There a Link to Market Power?
link.springer.com [PDF]
… While insurers have a series of regulatory backstops that also induce similar moral hazard … Keeley 8 would predict, we hypothesise that firms, expecting a federal backstop, will increase … insurers licensed and admitted in the individual states where each purchaser seeks coverage …

Corporate commercial paper, note issuance facilities, and shareholder wealthCorporate commercial paper, note issuance facilities, and shareholder wealth
www.sciencedirect.com [PDF]
… While insurers have a series of regulatory backstops that also induce similar moral hazard … Keeley 8 would predict, we hypothesise that firms, expecting a federal backstop, will increase … insurers licensed and admitted in the individual states where each purchaser seeks coverage …

Counterproductive proposals on euro area reform by French and German economistsCounterproductive proposals on euro area reform by French and German economists
papers.ssrn.com [PDF]
… While insurers have a series of regulatory backstops that also induce similar moral hazard … Keeley 8 would predict, we hypothesise that firms, expecting a federal backstop, will increase … insurers licensed and admitted in the individual states where each purchaser seeks coverage …

Electricity derivatives and risk managementElectricity derivatives and risk management
www.sciencedirect.com [PDF]
… While insurers have a series of regulatory backstops that also induce similar moral hazard … Keeley 8 would predict, we hypothesise that firms, expecting a federal backstop, will increase … insurers licensed and admitted in the individual states where each purchaser seeks coverage …

When safe proved risky: Commercial paper during the financial crisis of 2007-2009When safe proved risky: Commercial paper during the financial crisis of 2007-2009
www.aeaweb.org [PDF]
… While insurers have a series of regulatory backstops that also induce similar moral hazard … Keeley 8 would predict, we hypothesise that firms, expecting a federal backstop, will increase … insurers licensed and admitted in the individual states where each purchaser seeks coverage …


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