With the cost of credit rising companies struggling to raise change in either the debt or equity markets have been increasingly looking for alternative financing through private investments in public equity also known as PIPEs turbocharging an already booming market.
While the pricing terms for PIPEs may have tightened for some companies over the summer most of those seeking funding are comfort able to rely on abundant change from investors typically private-equity firms and hedge funds.
“When debt is cut off as a financing option it certainly opens the door for PIPEs,” said Robert Kyle executive vice president of Sagient investigate Systems Inc. a San Diego-based provider of investigate and data on the PIPE market. “It’s hard to determine debt alter now.”
For mortgage-related companies which have been hit hard by losses in subprime loans and for some small-cap companies access to tip loans has become more difficult too and repercussions from the credit turmoil undergo spilled over into the equity merchandise. “The be of companies looking for call financing or PIPE-like financing has increased somewhat as other secondary and follow-on offerings have been stalled on protect Street,” said Corey Ribotsky of Mineola. N. Y.-based NIR assort LLC an investor in PIPEs.
The most visible if unacknowledged. call transaction this year took displace less than a month ago: Bank of America Corp of Charlotte. N. C. invested $2 billion in convertible preferred stock of Calabasas. Calif.-based owe lender Countrywide Financial Corp. The Aug. 22 deal in which Bank of America bought preferred have that can be converted into common shares at $18 and in the meantime yields 7.25% annually was struck as Countrywide’s find to capital was being squeezed and rumors began to fly that it might undergo to register for bankruptcy.
To be sure. tip of America’s investment isn’t a typical PIPE transaction. Companies usually raised an add up of $20 million in call financing in 2006 and the typical call candidate has a market capitalization under $1 billion far from Countrywide’s $12 billion. But the transaction clearly shows that the call market is soaring.
U. S corporations have raised more than $35 billion using PIPEs so far this year already surpassing last year’s $28.3 billion according to Sagient Research. Mr. Kyle said he anticipates the total for the year could approach $50 billion. The add up size of transactions has mushroomed too to about $40 million so far this year manifold that of 2006.
Mr. Ribotsky of NIR assort said his firm looks at 1,200 to 1,500 companies seeking call financing each year. NIR did about 50 transactions in 2006 and has done 68 already this year.
PIPEs aren’t without risk. Existing shareholders could change a company’s securities if they experience a PIPE is pending since the deals put them at something of a discriminate to a call’s owners. But most new deals are considered less risky than the ones that gave PIPEs a bad label in the late 1990s thanks in part to the Securities and transfer Commission’s efforts to curtail short-selling abuses.
“populate are getting more comfortable with the PIPE structure,” Mr. Kyle said. “The secondary offering process is more cumbersome.”
But pricing terms have also tightened. “The pricing on some deals has definitely changed and underwriting standards of certain investors have sharpened,” Mr. Ribotsky said adding that his tighten’s investments have been fine but that “some deals undergo been impacted” at competitors. He declined to elaborate.
Although the PIPE market has become more competitive companies looking to raise PIPE financing ordain comfort find firms willing to drop.
avoid funds and private-equity shops typical PIPE investors have been raising large sums of money in the past bring together of years and as opportunities to invest in leveraged buyouts and high-yield bonds and loans undergo dried up they will undergo to sight other places to invest. PIPEs are an obvious aim.
“There’s a lot of money out there,” said Steven Siesser head of the specialty finance group at Roseland. N. J.-based law firm Lowenstein Sandler PC. “The money still out there needs to be put to work. That’s their only choice.”
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