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May 9, 2022
Welcome to the SPAC Research weekly newsletter.
The Cost of Extensions
It seems inevitable that a large wave of liquidations is coming for the SPAC market. Deal conditions are tougher than they've ever been and the market is saturated with SPACs. Fifteen deals have been announced since the SEC's new rule proposals were released March 30, but their average warrant price is roughly 25 cents. In comparison, there are 606 pre-deal SPACs, most with deadlines less than 15 months away.

Those pre-deal SPACs that can't close a business combination will need to extend or liquidate. Some of them have built-in optional sponsor deposit extensions, but others will need to call a meeting and offer shareholders the opportunity to redeem for cash while they seek permission to extend their life.

We've seen plenty of SPAC extensions approved at shareholder meetings -- 60 of them in 2020 and another 35 last year.
The coming wave of deadlines promises to set up a mad dash of extension requests from sponsors. How much cash per share will shareholders demand in order to hold onto shares instead of redeeming?

We took a simple average of the price paid per share each month for all extensions over the past five years. You can see the results below.
Extensions were expensive in 2018, then declined in cost for the next few years as the SPAC market heated up, before increasing again in 2022.

But the chart above doesn't really tell us everything we need to know. We broke out what fraction of all extensions over the past five years were paid vs. unpaid, below.
You can see that nearly half of all recent extensions have been free. In previous years, hot deals or those with premium sponsors that were trading above trust may have been able to hold on to much of their trust account without a meaningful contribution. But in the current market environment, almost every deal is trading at a discount.

Premium sponsors had an easy time lengthening their charter for free last year. But it seems certain that any SPAC seeking to retain most of its trust account will be forced to making a meaningful per-share contribution going forward.

We added a line to the monthly average chart so you can see the average price paid by year for paid extensions.
The average price in 2021 was elevated partly because a handful of smaller SPACs made multiple large contributions with small outstanding share counts. So the simple average doesn't tell us the whole story.

Below, we calculated the weighted average extension price by year, where the results are scaled by the actual number of shares that received a given monthly contribution. You can see the effective cost for sponsors is actually rising dramatically as SPACs are no longer able to hold onto many shares without making any contribution.
The median yield for SPACs right now is about 3.7%. With six-month Treasurys contributing roughly 1.4% of that amount, sponsors should expect to more than make up the difference with a contribution if they hope to convince shareholders to stick around. That gap of 2.3% comes out to roughly two cents per month.

Given the liquidity discount SPACs face, as well as the fact that there's not much of an equity premium to speak of at the moment, sponsors should expect to continue to pay shareholders at least three cents per month if retaining their trust account is a priority.

We saw three shareholder-approved charter extensions this past week, of which only one included any contribution to trust.

We've spent plenty of time recently discussing the pending rise in SPAC liquidation rates. It's impossible to say how many sponsors will throw in the towel without seeking an extension, or how many will pay up vs. taking their chances with a freebie extension. One SPAC last month secured a charter extension but opted not to continue after seeing actual redemption results.

We've heard plenty of sponsors muse defeatedly about current market conditions. It's impossible to say how many have given up already, or are not willing to commit more capital to extending their SPAC's life. But at least they know how much they'll need to pony up to avoid shrinking their trust account and float size to near zero.

News From the Past Week

Deal News

  • Mountain Crest Acquisition Corp. IV (MCAF) announced a deal to acquire CH-AUTO, an electric vehicle manufacturing and design service company based in China. The deal reflects an equity value of $1.25bn and is expected to close in Q4 2022.

  • Fortune Rise Acquisition Corporation (FRLA) announced a deal to acquire VCV Power Sigma, Inc. and VCV Power Gamma, Inc., affiliated companies that form a U.S.-based Bitcoin mining business. The deal reflects an enterprise value of $294mm and is expected to close in Q3 2022.

  • Goldenbridge Acquisition Limited (GBRG) terminated its deal with AgiiPlus Inc.

  • Spring Valley Acquisition Corp. (formerly SV) closed its acquisition of NuScale Power on Monday 5/2/2022 with 62.6% of public shares remaining. Ordinary shares and warrants are now trading on the NYSE as “SMR” and “SMR/W.”

  • Zanite Acquisition Corp. (ZNTE) shareholders approved the company’s acquisition of Eve at a meeting Friday 5/6/2022 with 8.3% of public shares remaining. The transaction is expected to close Monday 5/9/2022 with ordinary shares and warrants trading on the NASDAQ as “EVEX” and “EVEXW” beginning Tuesday 5/10/2022.

New S-1's
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Arago Acquisition Corp. ARAG 75 EF Hutton 102.0% W


IPOs
Name Ticker Raised ($mm) Sector Cash in Trust Coverage
A SPAC II Acquisition ASCB 200 General 101.8% 1/2+R
Cartesian Growth II RENE 200 General 103.0% 1/3


Registrations Withdrawn
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Elliott Opportunity I EOCO 1000 CS 100.0% 1/4
Acamar Partners Acquisition II ACAM 350 BofA 100.0% 1/4
Apex Technology Acquisition II APXB 300 GS 100.0% 1/4
New Providence Acquisition III NPAC 300 DB 100.0% 1/3
Seven Islands Inc SVNI 300 GS 100.0% 1/4
Tribe Capital Growth II BTVC 300 CF 100.0% 1/4
Acies Acquisition Corp. II ATWO 250 MS 100.0% 1/4
Callodine Acquisition CALQ 250 Wells Fargo 100.0% 1/3
Red Cell DRM Acquisition RCDA 250 CS 100.0% 1/3
B Capital Technology Opportunities BCTA 200 CS 102.0% 0
TradeUP 88 Corp. TUFU 88 US Tiger 100.0% 1/2

Charter Extensions

  • AGBA extended its charter through 11/16/2022 with a $0.15 contribution to trust for each of two three-month periods.
  • LNFA extended its charter through 8/24/2022 with no contribution to trust and 19.9% of public shares remaining.
  • DKDCA extended its charter through 8/11/2022 with a single $0.10 contribution to trust.
  • BREZ extended its charter through 9/26/2022 with no sponsor contribution to trust.
  • MAQC extended its charter through 8/7/2022 with a single $0.10 contribution to trust.

Upcoming Meetings and Deadlines

  • 5/9/2022 ARTA Prenetics approval meeting
  • 5/10/2022 OTRA Comera Life Sciences approval meeting (liquidation date 5/19/2022)
  • 5/12/2022 BWAC Extension approval meeting (liquidation date 5/17/2022)
  • 5/18/2022 LCAP MSP recovery approval meeting
  • 5/18/2022 NAAC Telesign approval meeting
  • 5/18/2022 KWAC Extension approval meeting (liquidation date 5/24/2022)
  • 5/19/2022 ZNTE Liquidation deadline
  • 5/20/2022 MCAE Liquidation deadline (pending $0.10 optional deposit extension)
  • 5/21/2022 RAM Liquidation deadline (pending $0.075 optional deposit extension)

Links

  • Businesswire reported that Giga Carbon Neutrality (GCN), a commercial technology and clean energy company, has signed an LOI with a major exchange listed SPAC.
Disclosures: Site administrators may maintain positions in various SPAC securities and may trade in or out of those securities at any time without notice. Information from spacresearch.com is provided for informational purposes only and should not be relied upon as the basis for any investment decision. Nothing on spacresearch.com is a recommendation or solicitation to buy or sell any investment.
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