Special Private Placements
Special Private Placement Facilities (SPPs) have been in use by public companies around the world for over a decade. Previous to this, the specific concept of executing capital increases in smaller amounts with greater frequency, upon which the SPPs were developed, has been utilized by public companies for over 20 years. This concept was originally known as ‘dribble out’ financing and was developed by Tier 1 investment banks. The Tier 1 banks and their clients felt the structure provided greater flexibility and the ability to take advantage of rising stock prices.
Today, SPPs are a common form of financing for public companies of all sizes and are also popular for private companies prior to listing. SPP facilities are typically utilized by public and private companies for the following objectives:
- Working capital/build cash reserves;
- Funding acquisitions;
- Funding capital investment and expansion;
- Retire debt/reduce balance sheet gearing/reduce borrowing costs;
- Enhances Company’s credit and borrowing status;
- Stand by funding;
- Pre-IPO companies can use the facility to support a current capital raise by marketing to investors.
SPP facilities offered to private companies represent a flexible and cost-effective alternative to traditional equity private placement or secondary offering. It provides a company, once listed, with the right but not the obligation to issue shares and raise capital or debt at a time of its choosing. Under the facility, the company receives a binding obligation by the SPP facility provider to issue a convertible note or purchase new company shares up to an agreed maximum value. The facilities are typically available for up to 3 years and renewable thereafter.
Importantly, the program is entirely controlled by the company. In contrast to a traditional public offering, placements or rights issue, the SPP facility provides the company with the flexibility of raising funding in amounts and at times of its choosing.
The general features of SPP facilities are outlined as follows:
- Size of facility agreed to match the Company’s individual financial needs ($5-$100m);
- Facility can be drawn down upon at any time, subject to a cap that allows regular draw downs , and in some cases allows large lump sum draw downs, however it does not provide the ability to draw down all the funds upfront;
- Company can set a minimum acceptable price.
- Company retains control over the amount and the timing of each draw down;
- Company can ask Investor to buy shares regardless of market conditions;
- Investor is a passive shareholder with no requirement for board representation.
- Standard placement documents used;
- Company can take instant advantage of a favourable stock price;
- Process is fast, settlement occurs within days, once listed.
- Obligation to buy shares is binding upon the investor;
- Shares or Notes are issued as the company determines, no uncertainty regarding outcome or dilution;
- Investor remains committed for the full 3 year period of the facility;
- Company is not committed to sell any shares, can do so only if it decides to.
- Cost is fully competitive with traditional financing structures;
- Moderate establishment fee;
- No non-usage fees.
- Unlike a credit or borrowing facility, there is usually no security requirement under this facility.
No Short Selling or Hedging by Investor
- Investor covenants not to cause or engage in any direct or indirect short selling or hedging of the securities of the company.
List of successfully completed SPP transactions
|Industry||Facility Size||Market Capitalisation||Facility Type|
|Technology||$5 M||Unlisted pre-IPO
|Equity facility that has a prerequisite that the company be listed|
|Personnel||$10 M||$ 10 M||Equity|
|Resources-Gold||$15 M||$ 40 M||Equity|
|Technology||$5 M||Unlisted pre-IPO||Equity facility that has a prerequisite that the company be listed|
|Resources -Gold||$18 M||$100 M||Convertible Notes|
|Resources – Gold||$30 M||Unlisted pre-IPO||Equity facility that has a prerequisite that the company be listed|
|Telecommunications||$5 M||$24 M||Convertible Notes|
|Resources||$45 M||$300 M||Convertible Notes|
|Resources||$10 M||$120 M||Convertible Notes|
|Technology||$10 M||Unlisted pre-IPO||Equity facility that has a prerequisite that the company be listed|
|Communications||$5 M||Unlisted pre-IPO||Equity facility that has a prerequisite that the company be listed|
|Resources||$5 M||Unlisted pre-IPO||Equity facility that has a prerequisite that the company be listed|
|Card Reward Program||$5 M||Unlisted pre-IPO||Convertible note facility that has a prerequisite that the company be listed|
|Property Hotel Group||$20 M||Unlisted pre-IPO||Convertible note facility that has a prerequisite that the company be listed|
|Technology Company||$15 M
(large initial draw down)
|$17 M||Convertible note facility|