Brattle Principal Marti Murray authored an article in Corporate LiveWire’s Bankruptcy & Restructuring 2019: Expert Guide publication, titled “Assessing the Reasonableness of Rights Offerings Raising Exit Financing in the Context of a Chapter 11 Bankruptcy Proceeding.” The article explains the role of rights offerings in corporate restructurings and important factors to ensure they are executed properly.
When a business reorganizes under Chapter 11, it often must raise exit financing to emerge from bankruptcy. These funds are used to pay off legacy creditors and to provide liquidity for ongoing company operations. Most often associated with bankruptcy cases of middle-market and large corporations, rights offerings are one well-established and effective technique to raise exit financing.
In a rights offering, stakeholders are given the option to make additional investments – at a discount to the plan value – in a company they have already invested in. In order to ensure that the needed amount of capital is raised, certain parties must agree to purchase any unsubscribed portion of the rights offering through a backstop commitment. In exchange for the backstop commitment, the backstop party receives substantial fees, paid in the form of either cash or reorganized company securities.
Allegations of inappropriate value transfers to the backstop parties are often disputed in bankruptcy courts. To avoid this type of litigation and to ensure that the rights offering’s economic terms are fair and reasonable, a high level of transparency is needed.
The full article, “Assessing the Reasonableness of Rights Offerings Raising Exit Financing in the Context of a Chapter 11 Bankruptcy Proceeding” can be accessed here.
Note: The Murray Analytics team joined The Brattle Group immediately prior to the publication of this article. If you have any questions, please contact Marti P. Murray at email@example.com.
Published in Corporate LiveWire's Bankruptcy & Restructuring 2019: Expert Guide