Committed equity facility: who is committed to what

A committed equity facility is not a committed credit facility, and it has nothing to do with health-equity commitments. It is an arrangement in which an investor commits to buy newly issued shares from a listed company on that company's demand, up to a stated amount over a stated term—nothing is lent, and nothing is repaid.

Key takeaways

• The commitment points towards the issuer. A lender commits to advance cash you must repay. Here an investor commits to subscribe for stock: no principal, no interest, no maturity.
• Committed means bound but conditional. The obligation is suspended by a registration statement that is not effective, a stop order, a trading suspension, an inaccurate representation, or no headroom under the caps.
• The issuer keeps the option. Timing, size within the purchase caps and, where the document allows it, a floor below which the purchase does not proceed.
• Purchase caps are counted twice. A fixed share ceiling per purchase and a percentage of traded volume across the window, whichever binds first.
• The intraday purchase is a second gear. Several US facilities allow further purchases the same day, priced from an intraday volume-weighted average, which lifts capacity without lengthening the window.

Two other things this phrase is used for

A material share of searches for this term are not about capital markets at all. One group wants a committed credit facility, a lending concept in which a bank is contractually bound to advance funds up to a limit. The other wants organisational commitments to health equity, where "facility" means a hospital or clinic. Neither is this page.

Committed to what, exactly

The vocabulary is borrowed from lending and it inverts the economics. Setting the two side by side is the fastest way to see what you are actually agreeing to.

What releases the investor from the commitment

Read the conditions precedent before the headline number. In market documentation the investor's obligation to fund is conditional on the resale registration statement being effective and usable, on no stop order or suspension, on the representations remaining accurate, on the shares being duly authorised and admitted, and on there being room under the purchase caps, the beneficial ownership limitation and the exchange cap. Many facilities also have commencement conditions that must be satisfied before the first purchase at all, so signing and availability are different dates.

None of that makes the commitment worthless. Its conditions are almost entirely within the issuer's own control: keep the registration statement current, keep filings timely, stay inside the caps. Treat the condition list as an operating checklist, not boilerplate.

How a purchase is sized and priced

A purchase notice is limited two ways at once: a fixed maximum number of shares, and a percentage of the aggregate trading volume measured over the applicable period. Whichever binds first is the real cap, and on a thin day that is almost always the volume test. The price is a stated percentage of a volume-weighted average price across the window, with the difference between that percentage and 100 standing in for the investor's compensation.

The beneficial ownership limitation caps what the investor may hold at any instant, commonly 4.99% and often electable up to 9.99% under Section 13(d) of the Exchange Act. The exchange cap embodies the listing rule: on Nasdaq, shareholder approval is required before a 20% Issuance priced below the Minimum Price under Listing Rule 5635(d). See financing a US-listed issuer for how those two interact in practice, and Rule 144 for why the facility depends on registration rather than on a holding period. Send the registration status and the volume. The rule is set out on this site under the Nasdaq 20% rule.

Related reading

• All instruments compared
• Standby equity distribution agreement
• Resale registration (S-1)
• Dilution and conversion mechanics
• Check whether you qualify

Primary sources

• Nasdaq Listing Rules — Rule 5635(d), 20% Issuance and Minimum Price
• eCFR — 17 CFR 240.13d-1, filing of Schedules 13D and 13G
• U.S. Securities and Exchange Commission — Securities Act Sections CFIs, Question 139.13

Committed equity facilities: frequently asked questions

What is a committed equity facility?

A committed equity facility is an agreement under which an investor commits to subscribe for newly issued shares of a listed company whenever the company serves a purchase notice, up to an agreed amount and over an agreed term. No money is lent and nothing is repaid. The company receives cash and the investor receives stock priced from a volume-weighted average over a defined window.

Is a committed equity facility the same as a committed credit facility?

No, and the two are opposites in almost every respect that matters. In a committed credit facility a lender is committed to advance cash that the borrower must repay with interest, secured or unsecured, on a maturity schedule. In a committed equity facility an investor is committed to buy shares. There is no principal, no interest, no maturity and no security, and the cost is dilution rather than debt service.

What does committed actually oblige the investor to do?

To fund a purchase notice that satisfies every condition in the agreement. The word means bound but conditional, not unconditional. In market documentation the obligation falls away if the resale registration statement is not effective, if a stop order is outstanding, if trading is suspended, if a representation has become inaccurate, or if there is no headroom under the purchase caps, the ownership limitation or the exchange cap.

Can an issuer be forced to draw on a committed equity facility?

Not in a standard facility. The issuer chooses whether to serve a purchase notice, when to serve it and how large it is within the caps, and there is normally no minimum drawdown obligation. What the issuer cannot undo is the commitment fee, which is earned at signing whether or not the facility is ever used.