November 10, 2021
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Returning from my brief hiatus, capital markets have begun to drum up a bit of excitement recently across all corners of the market.
Credit markets continue to be robust as cost of capital for high yield and junk issuers remains well below 5% - I would hardly call that high yield…or junk, but given where Treasuries sit, there is still spread for yield seekers on a risk-adjusted basis. The FOMC successfully disconnected the narrative that asset purchases and rate hikes go hand-in-hand, following Jay Powell’s tapering announcement, reducing bond purchases to $15B per week from $120B. Credit markets reacted positively. The headline CPI print this morning did a good job at rattling markets and reinvigorating the “transitory” inflation argument.
Equity desks begin to pick-up in deal volume across most mid-cycle and inflationary sectors, including, metals and mining, oil and gas, technology and real estate. Issuers are tapping the market at a greater pace, taking the cash while they can - important to note that a slight uptick in inflation does reduce real cost of capital (key word “slight”). American Hotel Income Properties (HOT/U) announced after-hours today its $50M bought deal of unsecured convertible debentures. The converts are being priced at 6s up 30 which appears to be on the pricier side of things across real estate. HOT’s cost of capital is likely to come down over time as the REIT proves out its nascent operations. The deal is being led CIBC and BMO.
Late last week D2L completed its $150M initial public offering of subordinate voting shares, listing on the TSX. The IPO was led by TD and BMO, along with a syndicate of dealers including CG, RJ, RBC, NBF and 8Cap. The deal was priced on the high-end of the range at $17.
Hive Blockchain hit the market with an $100M bought deal of special warrants, each special warrant converting into one unit consisting of one common share and one-half common share purchase warrant. The deal is being led by Stifel GMP and BMO - a house name for the team at Stifel. After years of putting out equity research, this just goes to show that if an analyst really has conviction in their price target, anything is possible…a little help from $60K BTC doesn’t hurt.
In other news, OPM Wars put out a follow-up piece on Third Eye Capital. The investment manager snapped back at OPM’s initial post on the hedge fund’s poor foray into King Street Foods. From the sounds of the reply it appears Third Eye isn’t too pleased with a bit of criticism…well if you are interested in going behind the curtain of one of the country’s self-proclaimed most successful special situation investors, just reach out. I have yet to decide whether I want to opine on this topic as special situation investors, particularly the country’s “best”, usually have too many bored lawyers on retainer. I will sleep on this one. In the mean time, I’m sure the country’s best money manager will need to supplement the hit to their ego with a night out of drinking on Bay Street. Maybe Rodney’s Oysters?
The IPO/RTO market remains backed-up with a pipeline of delayed deals. Issuers are sitting on the sidelines waiting for primetime as the markets continue to rock. There are two benefits to this: 1) bankers are rightly telling their clients to stand-by for a more supportive market; and 2) lock-up periods compress. Once momentum catches wind I’m sure we will see a flood of listings.
Lastly, I have been seeing a ton of activity coming out of Cantor recently. As you may recall, I touched on the US dealer’s expansion into Canada just under a year ago. Flow continues to be full of poor quality deals, or every mandate at somewhat reputable shop won’t touch. We shall keep an eye on the tape.
ECM World
Top 5 Notable Transactions
American Hotel Income Properties
$50M bought deal of convertible debentures
CIBC w/ BMO, CG, TD
E Automotive Inc.
$135M IPO of commons
CG w/ CIBC, NBF, Scotia
Hive Blockchain Technologies Ltd.
$100M bought of special warrants
Stifel GMP w/ BMO, CG, PI
Quisitive Technology Solutions
$40M bought of commons
Scotia w/ CG, 8Cap, DS, RJ, EWP, Beacon
NextLiving Communities Inc.
$20M best efforts of commons
Echelon (EWP) w/ CIBC, Cormark, DS, Scotia
Cheers,
G.G.