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Capital Markets Law Journal Advance Access originally published online on June 15, 2009
Capital Markets Law Journal 2009 4(3):272-289; doi:10.1093/cmlj/kmp025
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Rights offerings: a capital raising alternative for US companies in challenging market conditions

Robert M. Chilstrom, David J. Goldschmidt and Yasmeena F. Chaudry*
* Robert M. Chilstrom and David J. Goldschmidt are partners, and Yasmeena F. Chaudry is an associate, in the Corporate Finance department of Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, USA.

The first 150 words of the full text of this article appear below.


Key points

  • In favourable capital markets conditions, US companies have not frequently conducted rights offerings to raise new capital.
  • Because of the substantial decline in the valuations of US companies across a broad range of sectors in the past two years and the continuing impediments to raising capital from new investors, the use of rights offerings appears to be gaining momentum in the USA.
  • In light of this emerging trend, this article outlines the basic structural features of rights offerings and the legal considerations for US publicly traded companies proposing to conduct rights offerings.

 


   1. Introduction and background
 
For issuers incorporated in European jurisdictions, rights offerings have been a common method of raising capital in favourable as well as difficult capital markets conditions. Many of these jurisdictions’ corporate statutes grant pre-emptive rights to shareholders, requiring these companies to make an offer of newly issued shares to existing shareholders before seeking to raise new capital . . . [Full Text of this Article]


   2. Elements of a rights offering
 
Basic terms
Setting the subscription price
Oversubscription privileges
Transferable subscription rights
Managing the offering

   3. Guaranteed rights offerings
 
Backstop commitments
Standby underwriting commitments

   4. Securities Act registration requirements
 
Transactions to be registered
Exemption from registration for backstop commitment
Addition of transferable subscription rights
Form of Securities Act registration statement
Disclosure requirements
Transferable subscription rights

   5. NYSE requirements for rights offerings
 
Timing requirements
Notification of offering terms
Interval between effectiveness of registration statement and record date
Subscription period
Terms of the offering
Subscription ratio
Step-up of subscription rights
Subscriptions via guaranty delivery procedure
Trading of subscription rights
Prior shareholder approval rules
Exemption for rights offering
Backstop commitments
Change of control transactions

   6. Nasdaq requirements for rights offerings
 
Notification of terms for offering
Determination of ex-rights date
Prior shareholder approval rules

   7. Conclusion
 

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Capital Markets Law Journal 2009 4: 270-271. [Extract] [Full Text]