Basic Subscription Right
A Basic Subscription Right is the primary entitlement granted in a rights offering that allows an eligible holder to purchase a stated amount of new securities at the Subscription Price before the offering expires.
How it works
The offering documents define how many securities each right permits the holder to buy and how rights are allocated. The entitlement is often proportional to ownership on the Record Date or, in a restructuring, to eligible claims or holdings. Exercising the Basic Subscription Right can also be a prerequisite for access to an Oversubscription Privilege.
The basic right defines the holder’s initial allocation
The offering specifies the ratio between existing ownership or eligible claims and the securities available for purchase.
The holder can often exercise all, some or none
Offering terms determine whether partial exercise is permitted and whether partial exercise affects other privileges.
Full exercise can unlock oversubscription
Many offerings require the holder to exercise the basic entitlement fully before requesting additional unsubscribed securities.
The right expires if not exercised
Unused rights generally cease to have value after the applicable Exercise Deadline unless they were transferable and sold before expiration.
Worked example: fractional entitlement
If each right buys 0.071193 of a unit, a holder with 10,000 rights can subscribe for approximately 711 whole units after applying the offering’s rounding rules.
Why the allocation ratio matters
Two offerings with the same Subscription Price can require very different capital commitments depending on how many securities each right permits the holder to buy.
Common mistakes
Treating receipt of a right as receipt of the underlying security; overlooking the subscription ratio; assuming partial exercise preserves oversubscription eligibility; and ignoring rounding rules.
Example
Each eligible holder receives one right for every share owned on the Record Date, and each right permits purchase of 1.145 new shares at $1.00 per share. A holder with 1,000 rights can exercise the basic entitlement according to that formula.
Example
Each eligible holder receives one right for every share owned on the Record Date, and each right permits purchase of 1.145 new shares at $1.00 per share. A holder with 1,000 rights can exercise the basic entitlement according to that formula.
Professional note
Keep entitlement and exercise separate. Receiving Basic Subscription Rights does not mean the investor owns the underlying new securities until the rights are validly exercised and required consideration is funded.
Related terms
- Subscription Rights
Subscription Rights are rights granted to eligible holders in a restructuring financing to purchase specified new securities on stated terms, often in proportion to qualifying claims, holdings or another allocation measure.
- Oversubscription Privilege
An Oversubscription Privilege is a restructuring rights-offering feature that allows an eligible participant that fully exercises its basic Subscription Rights to request additional securities not purchased by other eligible holders.
- Subscription Price
Subscription Price is the amount an eligible holder must pay per share, unit or other security to exercise Subscription Rights in a rights offering or restructuring capital raise.
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