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Consent solicitation is an offer extended by the issuer of a security to investors who currently hold a stake in that security. The solicitation is typically a request for permission to make changes in the terms associated with that security. Stakeholders are usually given a specific date to respond to the solicitation. If the required number of percentage of stakeholders agree to the change, the security issuer may proceed with the changes after the expiration date on the solicitation passes. Should the request fail to meet with the approval of the required number or percentage of stakeholders, the measure fails and the chances are not made.
There are several reasons why a security issuer may wish to issue a consent solicitation seeking to amend the terms related to a bond or stock. One may have to do with economic situations that make it hard to comply with the original terms. When this is the case, the issuer may approach stakeholders for help in making changes that would keep the security viable without creating additional financial hardship on that issuer. Depending on the reasons for the request, the stakeholders may determine that allowing the change would protect their interests in the long run and grant permission for the amendments to take place.
A common example of a consent solicitation is with a bond issue. In situations where the original terms of indenture are no longer in the best interests of all parties concerned, the issuer approaches the bond holders and asks for permission to change those terms so that the bond remains a viable asset for both the holders and the issuer. The solicitation will usually include reasons for the request, including references or sources that function as documentation illustrating why the consent solicitation is necessary. Bondholders are requested to respond by a specific date; if a majority of the holders do not approve the changes, then the original terms remain in effect.
It is important to note that if the necessary number or percentage of stakeholders do not approve a consent solicitation, the issuer cannot arbitrarily make the changes. Many nations have strict regulations in regard to revising terms and conditions related to any type of business contract, including contracts between stakeholders and entities that issue securities. This measure prevents issuers from making changes that would financially harm investors in an effort to improve their own conditions, without providing stakeholders with the right to consider the proposed changes and either grant permission or reject the proposal.
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