BLOG — Jul 30, 2021
Untying the Knots: Simplifying Corporate Actions
By Madhu Ramu
Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, IHS Markit's Managed Corporate Actions™ team will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.
Lionheart Acquisition Corporation II: Just another SPAC deal?
Founded in 2019, Lionheart Acquisition Corporation II (LCAP) is a Florida-based corporation that operates as a blank check company, most commonly referred to as a 'SPAC': A Special Purpose Acquisition Company.
On August 13th, 2020, LCAP announced the pricing of its initial public offering of 20,000,000 units at a price of $10.00 per unit. With approval at hand, the units, trading under ticker symbol LCAPU, were expected to trade the following day on August 14th. LCAP also mentioned that they had granted their underwriters a 45-day option to purchase up to 3,000,000 of the units at the IPO price to cover any over-allotments.[1]
Days later, it was announced that the underwriters did just that… in full. Upon this effect, LCAP sat on an aggregate of 23,000,000 units issued in the IPO with about $230 million deposited in the Company's trust account. Clear High Hopes.
Now, what to do with the pile of cash?
On July 12th, 2021, Lionheart Acquisition Corporation II announced the business combination with MSP Recovery. Considered to be a "Leader in Data-Driven Solutions", MSP sets out to discover improperly paid claims out of the $3.6 trillion paid by healthcare payers yearly, pursuing them against primary payers and other responsible insurance parties. With MSP's CEO John Ruiz to lead the combined company, the deal values MSP at a $32.6 billion pro forma enterprise, with Lionheart's gross proceeds of approximately $230 million to fund MSP Recovery.
According to the business combination agreement, Lionheart stockholders who do not redeem their shares are expected "to collectively receive approximately 1.029 billion additional warrants with each such stockholder receiving at least 35 Additional Warrants, each with a 5-year tenor and being exercisable for one share of MSP common stock at an $11.50 strike price." If all goes according to plan, the combined company will list on Nasdaq under ticker symbol "MSPR". [2]
How is Lionheart's recent business combination with MSP Recovery any different from the hundreds of other SPACs?
Lionheart is one of the first SPACs we've seen "sweeten" the deal as an incentive to deter shareholders from redeeming their shares at the upcoming business combination meeting; a clever approach taken to avoid the same outcome we saw with Origo Acquisition Corporation and Saban Capital Acquisition Corporation.
Now, the 'normal' one-to-one share ratio transaction we commonly find on a SPAC's Common Stock to newly formed Common Stock instead looks like one Lionheart Acquisition Corporation II common stock share-to-one MSP Recovery common stock share plus at least 35 Additional Warrants…
And it doesn't stop there: Lionheart further indicates that holders will be given an increase in their pro rata warrant award should they choose not to redeem. This is a SPAC taking extraordinary precautions to dissuade holders from "abandoning ship" from their $9.98 stock price as of July 19th. More to come on what the marketplace is calling "one of the top 3 largest SPAC transactions ever." [3]
Our Managed Corporate Actions Experts will continue to monitor all future announcements to ensure the most accurate and reliable corporate actions data coverage.
Old Stocks Trying New Things:
On June 10th, 2021, Lojas Americanas S.A (LAME3) shareholders approved the terms and conditions tied to the "Protocol and Justification of the Partial Spin-Off of Lojas Americanas S.A. with Conveyance of the Spun-Off Portion to B2W- Companhia Digital". [4]
Although the plan's title could be considered lengthy, it truly does summarize the entire transaction. Simply put, LAME3 shareholders will be entitled to receive 0.18 Americanas S.A voting shares for every one share held, payable on July 21st, 2021 with the spun off shares trading Ex- on July 19th. Simultaneous to this Spin-off, B2W - Companhia Digital, a subsidiary of Lojas Americanas, will undergo a Name Change to Americanas SA (AMER3), effective on July 19th, 2021.
The question now becomes: Will LAME3 holders be receiving B2W or Americana shares as a result of the Spin-off?
The answer lies in the timeliness as to which the transaction plays out.
Technically speaking, Lojas Americanas S.A is spinning out their B2W - Compania Digital subsidiary, expected to go Ex- on July 19th. While this transaction plays out, B2W - Compania Digital is set to change their corporate name to Americanas S.A in parallel. So what we're left with post-July 19th is B2W - Compania Digital ceasing to exist and Americanas S.A's inception through the newly created merged company once the spun-off shares are distributed on July 21st.
This type of transaction ring any bells?
This is what we most commonly refer to in the US Market as a "Reverse Merger." Although seen less frequently globally, these transactions are seen as beneficial in terms of a simplified IPO process. Although many, it is clear that global visibility is one of the main factors Americanas S.A. are looking to achieve through their rapid intention to list in the US market as a secondary line. [5]
Please reach out to our Managed Corporate Actions Experts for more information or questions concerning the transaction.
2021's Accordion Operation:
In 2020, MCA validated one of the highest records of Debt Restructurings seen in years, with transactions ranging from Bankruptcy Filings, Exchange Offers, and Lockups to more unique schemes seen in the marketplace. One structure which stood out due to its complexity and uncertainty is known as an 'Accordion Operation", which was most recently activated by Deoloa, S.A. (OLE) as "the only alternative to save the company from Bankruptcy." [6]
So, what is an Accordion Operation?
In summary, an Accordion Operation is coined to term the reduction of capital stock to zero or below the legal minimum figure while simultaneously undergoing a capital increase. As a result of the capital reduction all existing shares are redeemed as worthless, while the new shares resulting from the capital increase then begin trading on the exchange with the original identifier, rebuilding the company's net worth.
In the world of Corporate Actions, there are different event methods to reflect both a Capital Reduction and a Capital Increase, most commonly seen as a Reverse Stock Split or Capital Decrease, and a Rights Distribution/Subscription, Subscription Offer, or Capital Increase, respectively.
Does it mean that any firm which undergoes some form of a Capital Reduction and Capital Increase is undergoing the "infamous" Accordion Operation?
The answer is No. It is not that a capital reduction followed by a capital increase immediately insinuates an Accordion Operation, but rather that an Accordion Operations' transaction utilizes the methodology of a capital decrease and capital increase. There are many reasons a firm would undergo a capital decrease and capital increase in relation to the par value of the security.
However, the major component here in an Accordion Operation is the drive of the initiative which is incidentally tied to the amount of capital reduction the firm is looking to debit.
With all these different features in mind, MCA has flagged the next expected Accordion Operation to take place in July 2021. Imaginarium SA (IMG) is a Spanish company that operates a chain of toy stores across the globe. Through the utilization of the Accordion Operation tactic, the company is looking to offset losses and reestablish the balance between the capital stock and net worth of the company from its 14 million euros accumulated in debt. Imaginarium states that the risk of an unsuccessful Accordion Operation will lead to the status of a voluntary bankruptcy.
Our Managed Corporate Actions Experts will continue to track the progress of Imaginarium's Accordion Operation plans as the Rights Offering remains open for subscription until August 9th, 2021.[7]
And So It Continues: Puerto Rico's Bankruptcy Protection Plan
What served as one of the most talked-about news of 2016, Puerto Rico's Government Development Bank (GDB) defaulted on a $422 million debt repayment, leaving Puerto Rico more than $70 billion in debt. Sitting at what was then the third time the island-state had defaulted on bond payments, the US White House began to take the necessary measures to help the island restructure its outstanding debt through the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), that to this day, remains a disputed act across both parties.
Known as one of the largest restructurings of public debt in U.S. history, we continue to see plans and restructurings unfold in the world of Corporate Actions. On July 27th, 2021, the Financial Oversight and Management Board (FOMB) announced that it had entered into an Amended and Restated Plan Support Agreement (PSA) with holders of general obligation (GO) bonds issued by the Commonwealth of Puerto Rico and bonds issued by the Public Building Authority (PBA).
Affecting 235 CUSIPs, the Exchange Offers indicate that all beneficial owners who tender their uninsured bonds by 5:00 p.m. ET on August 13th, 2021 ultimately consents to:
- being a party to the PSA, inclusive to receiving the PSA Restriction Fee, which will be 1.321% of claims; and
- the exchange of the CUSIP on such Uninsured Bond into a new CUSIP and contingent value instruments (CVI), which shares incremental value between GO/PBA claims if Puerto Rico's economy grows at a pace stronger than projected in the 2020 Certified Fiscal Plan for Puerto Rico.[8]
As a result, MCA set up the offer across all 235 CUSIPs to ensure the most accurate and timely awareness is made for subscribed clients.
Please reach out to our Managed Corporate Actions Experts for more information or questions.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.