Wellington Weekly
Wednesday Market Note (Incl. An ECM Update)
January 15, 2025
Subs -
WE ARE LIVE.
Qualified Canadian Readers Only.
Welcome back to the Wellington Weekly. The year kicks off with very little equity new issue activity, quite a bit of debt new issue and restructuring activity, and plenty of dealer-on-dealer violence. With no time to waste, let’s dive right in.
Kicking-off with the most captivating headline to hit Bay Street in several years - independent investment bank, Eight Capital is closing its doors as a select number of partners make their way over to Stifel GMP. Stifel GMP will be “purchasing” Eight Capital, and winding down the business imminently. Rumors of the transaction began circulating in the fall of last year, as the investment dealer (ranked 2nd and 7th for equity new issue volume and value in 2024) began knocking on doors of other independents in an effort to effectuate a liquidity event for its partners. Several dealers turned down the opportunity, with concern for what exactly it was they were purchasing. It appears Harris Fricker at Stifel GMP had no issue shelling out cash and stock to close down the doors of a competitor. 10 partners are expected to make the move over to the teetering Canadian Stifel franchise, while the remaining 50 employees are expected to be let go. Recall Eight Capital is the result of a 2016 management buyout of the Dundee Capital founders.
The news comes as a surprise to most across the street as separate rumors began circulating late last year of Stifel closing the doors to its Canadian office just 5-years after the purchase of GMP Securities.
Moving on to debt land, this week Chemtrade Logistics, Choice Properties and BTB announced senior note, debenture and convertible debenture offerings, respectively. The three issues come as a fair bit of a surprise to most fixed income buyers given the volatility seen across credit markets in January. The U.S. 10-Year Treasury is up ~10 BPS year-to-date after reaching a high of 4.8% last week.
On the other side of the coin, several notable Canadian technology and consumer-focused companies filed for CCAA over the holidays and into the new year. Filings of note include sched-I bank-funded Pluribus Technologies, CDPQ-backed Lion Electric, privately-held Comark Holdings, and Torquest-sponsored Joriki Inc..
With the up-tick in debt new issue and restructuring activity, we set the stage for some more dealer-on-dealer violence.
As discussed in previous Wellington Weekly notes, the up-tick in debt capital raising volume is on its way, in an all-too-expected moment for the markets. Let’s roll back the clock and set the stage:
In 2020 the Federal reserve back-stopped corporate credit markets for the first time in history amidst the wake of the the pandemic, while simultaneously cutting the overnight rate to 0%. The result? The cheapest cost of debt capital available to corporations in years, coupled with comforted investors that the corporate credit markets will be supported with government intervention if need be. The secondary result? Excessive corporate borrowing.
In the 5-years leading up to the pandemic, North American high yield volume ranged from 269-501, or US$168-$288 BN in value. Following the Fed’s intervention, the High Yield market saw activity increase 50% from its previous peak to US$428 BN and US$429 BN in value for 2020 and 2021, respectively. At the same time, volume peaked at 584 transactions. The following year in 2022, the high yield market experienced its worst year for new issue activity in over two decades, seizing up to 117 transactions valued at US$96 BN - in part due to the failed syndication of LBO debt lent by the bulge bracket banks. A bull to bear credit cycle in 3-years.
Now that the stage has been set…so what? Drum roll please…high yield structures are typically 4-5-years. The simple math is follows:
2020 + 4-year term = 2024 maturity
2020 + 5-year term = 2025 maturity
2021 + 4-year term = 2025 maturity
2021 + 5-year term = 2026 maturity
TLDR; there is a swath of maturities coming due this year and next, in addition to the flurry of private credit transactions that will need refinancing and/or recapitalizing…but why should the chartered banks have all the fun?
Back to the dealer-on-dealer violence. Let’s see who is enjoying themselves.
At year-end INFOR Financial press released their involvement in the arrangement of Source Energy’s US$135 MM term loan with Michael Gatto’s Silver Point Capital. INFOR acted as sole lead arranger - what appears to be a first for them - or a rare occurrence. Following this transaction, the firm published a happy holidays message including a paragraph that caught my eye:
“We are optimistic about a robust Canadian M&A environment. Additionally, we are enthusiastic about growth opportunities in areas such as private credit. With a strong, dedicated team, INFOR is the gateway to help Canadian companies access greater credit flexibility from this rapidly expanding global market.”
Up next is Ventum Financial (formerly Echelon Wealth). Last week, the firm announced the placement of a new Head of Debt Capital Markets, former Co-Head of Investment Banking, Karanjit Bhugra. Simultaneously, Ventum announced the hiring of Ali Hasan and Istvan Mozes as Managing Director of Debt Capital Markets and Fixed Income Sales & Trading, respectively. Ali joins from Deloitte’s debt capital advisory group. Wrapping up the triple header of press releases, Ventum then published a one-pager on its DCM practice, highlighting its first rated high yield transaction for the group - US$175 MM of bonds for Polaris Renewable Energy.
Moving on we have Beacon Securities. This one will be short and sweet as the firm moved to include a one-line addition to its LinkedIn bio:
“Our fixed income team is involved in underwriting, origination, trading and sales of corporate and government securities”
The focus remains on convertible and mezzanine structures.
Next up is Canaccord Genuity. The firm launched a debt practice in 2018, leading the independents in debt transactions by volume and value. In 2023 as part of the mass layoffs across Bay Street, the debt practice was shuttered. See high yield volume stats above - the debt practice is back with the hiring announcement of Jason Mooney to lead Debt Capital Markets. Jason comes from Ventum where he held a similar role.
Lastly, we have Cormark - the independent that has been slowly stealing equity and M&A market share from its peers across the street. Following the news of several key employee departures, including Head of Investment Banking, Alfred Avanessy, Darren Wallace stepped-in to the lead role. His first order of business? Compete in debt capital markets. Earlier this week, Cormark announced the hiring of Mark Hoogeveen and and Akash Goyal to Co-Head and launch Cormark’s DCM practice. The two are joining from Ventum.
We look forward to monitoring all the debt activity in Canada.
ECM World
Top Notable Transactions
Chemtrade Logistics
$125MM High Yield Offering
NBF w/ BMO
Choice Properties REIT
$300MM High Yield Offering
RBC w/ Scotia, TD, BMO
BTB REIT
$30MM Bought Deal of Convertible Debentures
RJ w/ Roth
Verses AI
$12MM Marketed Offering of Units
AGP
Cheers,
G.G.