Preemptive Rights (Subscription Rights)
Chapters in this video
- 0:00 What preemptive rights protect and charter requirement
- 1:36 Rights holders get no voting rights or dividends
- 2:34 Subscription price, 30-90 day term, and rights vs warrants
- 4:12 Cum-rights and ex-rights trading distinction
- 4:48 Cum-rights and ex-rights value formulas
- 6:19 Standby underwriter firm commitment backstop
- 7:06 Rapid-fire exam recap
What this video covers
- Why preemptive rights are granted by the corporate charter and are not automatic for every common stockholder
- How rights holders receive zero voting rights and zero dividends, and when shareholder privileges actually begin
- Why the subscription price is always set below market value for rights, and how this distinguishes rights from warrants
- The three choices rights holders have: exercise, sell on the secondary market, or let expire worthless
- How cum-rights trading differs from ex-rights trading, including who receives the rights and how the ex-rights date is set
- Calculating theoretical value using the cum-rights formula and the ex-rights formula, and why the cum-rights denominator adds 1
- What a standby underwriter does in a firm commitment arrangement, and why the issuer pays a fee for this guarantee
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