In recent years, rights offerings ‘backstopped’ by select creditor groups—who commit to buy any unsubscribed equity—have become a common feature in Chapter 11 exit financing. In our paper, titled The Backstop Party, we present empirical evidence suggesting that these arrangements may serve as a mechanism to circumvent a key principle of the Bankruptcy Code.

At the heart of our study is a simple but pressing question: Is the benefit received by backstop parties purely compensation for the underwriting risk they assume, or does it serve quietly to provide them superior treatment vis-a-vis creditors of the same class in exchange for supporting the debtor’s plan of reorganization?

Read more at Oxford Business Law Blog