Editors’ Note: this is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to email@example.com and we will try to answer it.
Fred T. emailed, asking, “I own securities of a company and heard on the news that it is contemplating doing an “exchange offer.” What is an exchange offer?
An exchange offer is one way a company can complete an out-of-court restructuring. And, for a distressed company that has public debt it may be the only way to accomplish that. An exchange offer consists of the issuing of new securities and an offer to existing security holders to exchange the currently outstanding securities for new securities. As with any financial restructuring, the primary goals are to reduce corporate leverage, minimize near-term debt service, and extend debt maturities. Where corporate bonds are being exchanged, the new securities typically are comprised of securities with a lower priority, such as equity.
Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.
The editors and editorial board of DailyDAC include preeminent restructuring and insolvency professionals, journalists, and editors. They are devoted to providing reliable and plain English education and deal intelligence about assignments, corporate bankruptcy, receiverships, out-of-court workouts an similar topics.
Is Distressed Investing for “the Little Guy”?
90 Second Lesson: When To Request Relief From the Automatic Stay
90 Second Lesson: First Step When Purchasing a Distressed Business
90 Second Lesson: Personal Liability for Unpaid Taxes in Insolvency Cases
90 Second Lesson: What is the Difference Between Recharacterization and Equitable Subordination?
90 Second Lesson: How is a General Carve-Out Different than a Professional Fee Carve-Out?
Our weekly newsletter, sent every Tuesday at 9am, includes: