Actionable Ideas for Companies and Sponsors

Rights Offerings and Creditor-Sponsored Equity Financings in Distressed Situations

Given the economic slowdown that has accompanied the pandemic, equitizing indebtedness is often not sufficient to ensure that the reorganized company is solvent, or that its plan of reorganization is feasible. As a result, creditor-sponsored equity financings and rights offerings have become increasingly utilized to recapitalize companies in distressed situations, including in Chapter 11 bankruptcy proceedings.

As creditor-sponsored equity financings, in two of Jefferies recent advisory assignments—the $1.5 billion restructuring of Foresight Energy and the $1.3 billion restructuring of Quorum Health—creditor groups raised significant equity capital to fund a plan of reorganization and acquire equity in the debtor at emergence. Regarding rights offerings, they provide a distressed company and its creditors with many benefits including: (i) resolving valuation disputes, (ii) allocating control, and (iii) acting as an effective financing tool by giving all qualified members of the requisite class the ability to participate in the financing.