Rights offerings are everywhere these days. Although used for years in bankruptcy cases without much fanfare, in more recent cases, they have become front and center. In the last five years alone, rights offerings have constituted a critical part of the proposed exit capital1 for a number of large Chapter 11 cases, including Delphi, DURA Automotive, Northwest Airlines, Lyondell Chemical, AbitibiBowater, Charter Communications, Extended Stay, Six Flags, Visteon, General Growth Properties, Spansion, Tronox and Washington Mutual.2
By their very nature, rights offerings are a useful tool for raising capital in a tight credit market: They allow existing creditors to keep control of the restructured entity; they provide investors with opportunities to purchase positions in companies often at a significant discount; and they are typically structured as equity, allowing the reorganized company to remain significantly deleveraged after emerging from bankruptcy.
