Equity Clawback (EqC) is an option securing the issuer’s right to early redemption of a fraction of the bond issue on any day of a predetermined period.
EqC in essence resembles a call option since the issuer has the exclusive right to exercise it. At the same time, the bonds are redeemed within EqC using the funds raised by the issuer as a result of the placement of shares, be it an initial or additional placement. EqC is defined by three parameters:
— redemption price;
— expiration date;
— the greatest possible share of the issue that may be redeemed by the issuer under an option.
As a rule, the EqC term begins from the settlement date and ends in 3 years; the prevailing maximum share of redemption is 35% (e.g. B/E Aerospace, 5.25% 1apr2022, USD
). Although the bondholders are not entitled to waive the option, this early redemption option is usually also beneficial for them as the EqC strike price, all things being equal, is higher than that of call options.
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