Cash-Settled Total Return Swaps (M&A Glossary)

A cash-settled total return swap (TRS) is a contractual arrangement where one party (the short party), usually a bank, agrees to pay the other party (the long party) the market value appreciation and cash flows (such as dividend payments) associated with an agreed upon number of shares of a public corporation (notional number). In exchange, the long party pays a “financing fee” to the short party, and if applicable, any decrease in the market value of the securities during the term of the arrangement. The contract will provide that any amounts owed by one party to the other will be settled in cash. Through a TRS arrangement, the long party effectively has obtained the economic attributes of stock ownership without obtaining the right to acquire or vote, or to direct the disposition or voting of, any shares, resulting in such attributes falling outside of the definition of “beneficial ownership” in the Securities Exchange Act of 1934 and therefore not subject to the related reporting ...