The past few years have brought a number of large rights offerings in bankruptcies in the energy, healthcare, and retail sectors. Between January 1, 2015, and December 1, 2017, more than $5.5 billion was raised through rights offerings or private placements in more than two dozen large bankruptcy cases.
In 2017 alone, seven companies raised $300 million or more through rights offerings. The largest offering was completed by Peabody Energy Corporation, with the company raising $1.5 billion through a $750 million rights offering of common stock and a $750 million private placement of preferred shares.
Absent a cash crunch that forces a quick sale under Section 363 of the Bankruptcy Code, and with plenty of investors having liquidity to invest, rights offerings are an efficient way for a distressed company to raise money, right-size its capital structure, and provide recoveries to creditors.
Rights offerings also allow an investor to put more money to work in an existing investment as opposed to seeking new opportunities in a relatively tight distressed market. Moreover, for those willing to backstop a rights offering, there is a potential to earn significant backstop
fees, have expenses paid, and otherwise influence the outcome of the debtor’s Chapter 11 case, post-emergence capital structure, and corporate governance.
The use of rights offerings over the past several years may be partially attributable to the fact that otherwise strong companies, with good assets and solid management teams, were forced into
bankruptcy by a downturn in commodity prices. As commodity prices improve and weaker companies are forced out of business, the equity value of companies that remain and are delevered should
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