Man climbing a rope
A consent solicitation is an offer made by the issuer of a security to investors who currently have an interest in that security. The request is usually a request for permission to make changes to the terms associated with that title. Interested parties are usually given a specific date to respond to the request. If the required number of percentage of interested parties agrees to the change, the title issuer may proceed with the changes after the due date of the application tickets. If the request does not meet the approval of the required number or percentage of interested parties, the measure fails and the possibilities do not materialize.
There are a number of reasons why a security issuer may wish to issue a consent solicitation to change the terms relating to a security or stock. One may have to do with economic situations that make it difficult to comply with the original terms. When this is the case, the issuer can approach stakeholders for assistance in making changes that keep the security viable without creating additional financial hardship for the issuer. Depending on the reasons for the request, the interested parties may determine that allowing the change would protect their long-term interests and grant permission for the changes to take place.
A common example of a consent solicitation is the issuance of bonds. In situations where the original terms of the indenture no longer serve the best interests of all parties involved, the issuer approaches the bondholders and requests permission to modify these terms so that the bond remains a viable asset. for both the bondholders and the issuer. The request will generally include the reasons for the request, including any references or sources that act as documentation illustrating why the request for consent is required. Bondholders are required to respond by a certain date; if a majority of the holders do not approve the changes, the original terms remain in effect.
It is important to note that if the required number or percentage of stakeholders do not approve a consent request, the issuer cannot arbitrarily make the changes. Many nations have strict regulations regarding the review of the terms and conditions related to any type of commercial contract, including contracts between interested parties and entities that issue securities. This measure prevents issuers from making changes that would financially harm investors in an effort to improve their own terms, without giving interested parties the right to consider the proposed changes and grant permission or reject the proposal.