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What is an equity line?
Under an equity line, a company negotiates the right to sell shares of stock to a particular purchaser (often a private equity fund) in increments or tranches over a period of time, much as a company might make draws on a line of credit. While the timing and size of each tranche are generally in the company's discretion, the purchaser has a nearly absolute obligation to make each purchase. Equity lines are particularly good financing vehicles for public companies whose other capital sources have become unavailable, since the purchaser can resell the shares into the market to gain liquidity and hedge their risk.
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