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Past Newsletters

March 23, 2020
Welcome to the SPAC Research weekly newsletter.

Selloffs Past and Present
Not so long ago, SPAC investors scrutinized 10-Q and 10-K reports for additional fractions of a penny that might reside in SPAC trust accounts. Anything counts when you're trying to squeeze out a few extra basis points of yield, especially if you're using leverage.

But over the past few weeks, the selloff in SPACs has blown out yields well beyond anything in recent memory. Last week's chart looks tame compared with the graphic below showing where all SPACs without a transaction announced are trading relative to their cash in trust as of Friday's close.

And here's a look at the estimated yield to maturity for all SPAC common equity without an announced deal. The median SPAC is trading at approximately a 6.5% yield to maturity right now.
Panic selling and a challenging liquidity environment have driven prices down and yields up dramatically. If you've been invested in SPAC common equity, you're marked down far less than the broader market. But that's small consolation to those who bought SPACs as a cash or fixed income alternative.

The Last Bear Market
Stocks are down over 30% from recent all-time highs, and we've taken a lot of questions this week about how SPAC common equity traded during the 2008 financial crisis. From October 2007 to March 2009, the S&P 500 lost over 50% of its value. There are lots of ways in which the 2008 financial crisis was completely distinct from our current situation. Chaos has ensued incredibly quickly and we're not trying to draw additional parallels to 2008.

Because a lot has changed since 2008 in the SPAC world, there's not a perfect comparison of common equity between now and then. Governance has improved dramatically and shareholders can now vote in favor of a deal and still redeem for cash. There are a lot more premium sponsors in the market. And the yield curve was considerably steeper in 2008 than it is now.

Nevertheless, we wanted to take a look at how SPACs looked at the bottom of the last bear market. So we gathered what we could from the set of active SPACs in the US market during Q4 2008 (pricing data can be hard to come by for some issues). We tried to put together versions of the charts above for October 2008.

First, some caveats. This study should by no means be considered instructive. We are not trying to predict how SPAC common equity will trade. We merely hope its useful to have some historical context.

The chart below, of Trian Acquisition Corp., an $800mm SPAC chaired by Nelson Peltz (that never completed an acquisition), is fairly representative.
SPACs started at deeper discounts to trust throughout 2008 than they did in February 2020. It looks like many were trading at a 6-7% yield at the beginning of Q3 of 2008. Then a selloff began after Lehman Brothers' bankruptcy filing and most SPACs bottomed in mid-October 2008.

When participants need liquidity, they often sell anything that isn't bolted down, and SPACs are no exception. Here's the trading discount to trust scatter plot measured from the lowest closing print for the SPACs for which we could find data in October 2008.
And here's the estimated yield earned from each of those points to the eventual redemption value of their trust accounts.
If it feels chaotic in SPAC land right now, just remember - the market was a a lot worse back in 2008. But it is worth noting how consistent the pricing of the bottom was. You can draw an impressively accurate best fit line through the Trading Discount to Initial Trust Value curve above.

Remember, we're not trying to predict market activity here. Nobody knows where the trajectory of the coronavirus pandemic and this market move will take us.

The good news is, SPACs are still holding their money in a trust account. When cash is in short supply, price dislocations abound. But we're not aware of any incidents, even in 2008, where SPAC shareholders were unable to recoup their pro rata portion of trust.

News From the Past Week
IPOs and S-1's
  • Social Capital Hedosophia Holdings II and III (IPOB, IPOC) postponed their IPOs and amended their S-1 filings to include 1/3 instead of 1/4 warrant per unit. It's tough to say at this point when the IPO market will be ready for new issuance but it will be pretty challenging for new offerings to compete on similar terms while so many recent offerings are trading well below $10.

  • Sustainable Opportunities Acquisition Corp. (SOAC) filed to raise $300mm for a sustainable (ESG) acquisition. SOAC is led by CEO Scott Leonard and Chairman Scott Honour. Leonard has expertise over the past eight years driving decarbonization through technology adoption, and has served in various executive roles for GenOn Energy, a subsidiary of electric utility NRG Energy. Honour is managing partner of Northern Pacific Group, a private equity firm, and spent 10 years at The Gores Group. Citigroup is sole book-runner.

Deal Announcement
  • ARYA Sciences Acquisition Corp. (ARYA) announced a deal to acquire Immatics Biotechnologies GmbH, a clinical-stage biopharmaceutical company active in the discovery and development of T cell redirecting cancer immunotherapies. Assuming no redemptions, Immatics' initial market capitalization will be approximately $634mm. The deal includes a $104mm PIPE led by Perceptive Advisors and other institutional investors including RTW Investments. Immatics shareholders and management are retaining 100% of their equity and closing is expected in Q2 2020.
Meetings and Approvals
  • Diamond Eagle Acquisition Corp. (DEAC) scheduled its DraftKings approval meeting for 4/9/2020. Due to coronavirus concerns the meeting may be held remotely. In that event, the company will provide details as soon as possible via press release, its website, and SEC filings.
  • Tiberius Acquisition Corp. (TIBRU) closed its acquisition of International General Insurance on Tuesday, 3/17/2020. Approximately 7.9mm public shares (46%) were redeemed for cash. Ordinary shares and warrants commenced trading on Nasdaq on Wednesday 3/18/2020 under the symbols “IGIC” and “IGICW."
  • EdtechX Holdings Acquisition Corp. (EDTX) filed for a one month extension until 5/10/2020 with an unspecified contribution to trust. The company has another meeting scheduled Thursday 3/26/2020 to approve its acquisition of Meten Education.
  • Gordon Pointe Acquisition Corp. (GPAQ) postponed its 3/25/2020 meeting to approve its HOF Village business combination. No new meeting date was provided but the company did specify a $0.013 per share contribution to trust in connection with its 45-day charter extension until 5/14/2020. The extension meeting will be held 3/30/2020.
  • 8i Enterprises Acquisition Corp. (JFK) was set to hold a teleconference meeting Friday 3/20/2020 to approve its acquisition of Diginex but instead adjourned that meeting until 6/15/2020.
  • Allegro Merger Corp. (ALGR) has two meetings planned for Thursday 3/26/2020, one to approve its TGI Friday’s transaction and one to extend its charter for one month until 4/30/2020 (with no contribution to trust).
Charter Extensions
  • Graf Industrial Corp. (GRAF) filed for a three month extension until 7/31/2020 with no per share monthly contribution to trust.

  • Opes Acquisition Corp. (OPES) shareholders approved an extension until 6/18/2020 with a $0.03 per share monthly contribution to trust. Approximately 4.4mm shareholders exercised redemption rights, leaving just over $48mm in trust.

Disclosures: Site administrators are long ARYA, DEAC, EDTXW, GPAQW, GRAF, GRAF.U, GRAF/W, ALGRR, ALGRW, OPESW and may trade in or out of positions in these or other SPAC securities at any time. Information from is provided for informational purposes only and should not be relied upon as the basis for any investment decision. Nothing on is a recommendation or solicitation to buy or sell any investment.