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.
How it works
The Subscription Price is set by the issuer and transaction documents rather than by a universal formula. It can be fixed at a stated dollar amount or determined from a market-price, VWAP or valuation-based formula. In restructurings, the price can be intentionally below the plan or market reference value to encourage participation and provide economic value to eligible holders.
The price is a transaction term
Offering documents specify the amount due for each security purchased through the rights exercise.
Pricing formulas can differ
A price can be fixed or linked to VWAP, an agreed plan valuation, a reference trading price or another formula.
Cash payment is usually required
Subscription Rights normally provide an opportunity to invest rather than a free distribution of the underlying securities.
The price can create embedded value
When the expected value of the purchased security exceeds the Subscription Price, the right can have economic value before transaction risk and restrictions.
Worked example: price below reference value
A holder can purchase 100,000 shares at $6.90 when the reference value used by the offering is approximately $7.11. The gross reference discount is about $21,000 before fees, price movement or other risks.
Why the price matters for Plan Funding
Multiplying the Subscription Price by the number of securities sold determines the gross capital raised, subject to expenses and any shortfall.
Common mistakes
Treating the Subscription Price as guaranteed fair value; confusing it with the market price after emergence; ignoring required cash funding; and valuing a discount without considering dilution.
Example
A Chapter 11 rights offering permits eligible creditors to buy New Common Equity at $7.50 per share. If the plan’s implied equity value corresponds to $10.00 per share, the offering embeds a $2.50 per-share discount before considering market and execution risk.
Example
A Chapter 11 rights offering permits eligible creditors to buy New Common Equity at $7.50 per share. If the plan’s implied equity value corresponds to $10.00 per share, the offering embeds a $2.50 per-share discount before considering market and execution risk.
Professional note
Do not value Subscription Rights from the discount alone. The relevant comparison is the exercise price against the expected value of the security received, adjusted for dilution, liquidity, funding risk and the probability the plan becomes effective.
Related terms
- Rights Offering
A rights offering gives existing shareholders subscription rights to purchase newly issued securities, usually in proportion to current ownership.
- Plan Funding
Plan Funding is the cash, financing, asset-sale proceeds, retained liquidity, new investment or other resources used to satisfy distributions, administrative obligations and implementation costs required by a Chapter 11 plan.
- 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.
- New Common Equity
New Common Equity is common ownership issued by a Reorganized Debtor or successor under a Chapter 11 plan, often distributed to creditors, sold for new capital or reserved for management and other plan constituencies.
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