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ARTICLE · 16 FEBRUARY 2023

The Backstop Rights Offerings: Securing Capital During Your Restructuring Process

Mayer Brown
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When a Chapter 11 debtor seeks to emerge from bankruptcy through a plan of reorganization1 it must demonstrate feasibility by, among other things, showing sufficient funding...

United StatesInsolvency/Bankruptcy/Re-Structuring
Adam C. Paul
Adam C. Paul
Lucy F. Kweskin
Lucy F. Kweskin
Tyler R. Ferguson
Tyler R. Ferguson
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When a Chapter 11 debtor seeks to emerge from bankruptcy through a plan of reorganization1 it must demonstrate feasibility by, among other things, showing sufficient funding for its go-forward, reorganized operations. Some or all of this funding can come through a rights offering — in which the reorganized debtor issues debt or equity instruments to raise funds. Backstop agreements have become a frequent companion to bankruptcy rights offerings and commonly involve existing creditors or equity holders guaranteeing that the rights offering will be fully subscribed by agreeing to purchase any unsubscribed rights in exchange for a fee.

This chapter provides an overview of how backstop agreements are utilized in Chapter 11 bankruptcy cases, addresses common critiques of backstop agreements and analyzes recent trends in backstop agreements through the lenses of both case law and key terms in the underlying backstop agreements.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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