What is a Warrant? A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy a specified number of shares of an underlying asset at a predetermined price (exercise price) and within a specified time frame. The underlying asset is typically the common stock of the company issuing the warrant.

Purpose of Issuing Warrants Companies issue warrants to raise long-term capital. By allowing investors to convert warrants into common stock, companies can tap into a broader investor base.

• Flexible Financing: Companies can tailor the terms of warrants to their specific financing needs, such as maturity date and exercise price.
• Expanded Investor Base: Warrants can attract new investors, potentially increasing the company’s visibility and market capitalization.
• Increased Liquidity: The exercise of warrants can lead to an increase in the number of shares outstanding, which may improve the liquidity of the company’s common stock.
• Reduced Financing Costs: Warrants can be used in conjunction with other securities to reduce overall financing costs.
• Improved Capital Structure: By converting warrants into equity, companies can reduce their debt-to-equity ratio, which can improve their credit rating.