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Equity Buy-Backs

Buy-back is a term which may not be clear to small company management or shareholders of significant amounts of corporate stock. Perhaps a buy-back scenario is being contemplated in your company or a financier has requested a buy-back covenant, and you are curious as to how and why publicly held companies structure and use buy-backs. In evaluating one's portfolio, a shareholder may wonder why a particular company chose to do a buy-back as part of its financial strategy. This 11-page exhaustive overview defines a buy-back and provides answers to how they are financed, structured and transacted as well as provides the "anatomy" of a sample deal.




[Excerpt from the paper]

What they are, how they work, and the ways they are structured

‘Buy-back’ is a term which may not be clear to small business owners or shareholders of significant amounts of corporate stock. Perhaps a buy-back scenario is being contemplated in your firm, and you are curious as to how and why publicly held companies structure and use buy-backs. In evaluating his portfolio, a shareholder may wonder why a particular company chose to do a buy-back as part of its financial strategy. This overview defines a buy-back and provides answers to how they are financed, structured and transacted. Is outlines a sample of a buy-back agreement, however, the information is neither be considered legal nor financial advice.

Definition of a buy-back and how they are financed

Buy-back is defined as the purchase of a long position to offset a short position. Most often, the largest source of funds for stock purchases, corporate buy- backs, are internal funds when management determines shareholders are better served by using profits to buy-back shares rather than paying dividends. In other words, buy-backs are financed with earnings or excess cash. The second most often used vehicle is a debt instrument, usually corporate bond with an average life in excess of 7 years. So in that sense, the financiers are qualified institutional buyers (QUIBs) who "eat" the paper -- or buy the bonds.

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