In corporate finance and investment banking, a Back Stop or Backstop is to provide last-resort support or to make a bid in a securities offering for the unsubscribed portion of shares. When a company is trying to raise capital through an issuance and wants to guarantee the amount received through the issue it may get a back stop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares. This arrangement can be especially important when issuing debt securities because it allows companies access to credit markets by mitigating investor concerns about over subscription. Issuers will often use this technique when they have existing relationships with investors who are likely to purchase most or all of the new security issue. In addition, using one's own resources as collateral for borrowing money from banks can also be seen as form of self-backstop.Backstopping is also used by companies in affiliate transactions to ensure that the target company's shareholders receive a fair price for their shares. Often, an underwriter will agree to buy any excess shares of the target company's stock at a predetermined price (the "backstop price") or will buy oversubscribed shares at the highest bid during the offering.
