Bay Street loses millions on Silver Wheaton bought deal
Wednesday, March 18, 2015
TIM KILADZE
The unsold shares from Silver Wheaton Corp.’s billion-dollar financing are finally in the hands of investors, but getting them there required the underwriters to endure substantial losses.
Earlier this month the streaming company launched an $800-million (U.S.) bought deal, worth roughly $1-billion (Canadian), to help finance a new acquisition. Even though investors have been more than willing to help fund companies’ purchases over the past few months, giving the underwriters some hope that Silver Wheaton’s deal would sell, this one ran into trouble from the get-go.
As soon as word got out that the deal was struggling, investors backed away, and multiple sources said the deal was likely only one-third sold. To get rid of the remaining shares, the investment banks re-priced the remaining shares late Tuesday at a substantial discount to the original offer price.
When the deal first launched, the shares were sold for $20.55 (U.S.) each. The ‘clean-up’ price, as it is known, was just $18.30 per share – an 11 per cent discount.
Multiple syndicate members say they lost money on the deal, and estimates peg the losses of Scotia Capital Inc. – which served as the lead underwriter – between $5-million (Canadian) and $10-million. Scotia Capital could not immediately be reached for comment.
The deal came with a 3.75 per cent commission for the investment banks, meaning $30-million (U.S.) in fees were originally up for grabs. However, because the clean-up price was so low relative to the first offer price, these fees have since been eaten up – and then some.
To a few investment bankers, it’s still somewhat puzzling that the deal didn’t sell. A number of other bought deals launched over the past few weeks seemed riskier, particularly those for energy companies which are subject to wildly volatile oil and gas prices. Silver Wheaton’s financing, meanwhile, had a rational use of proceeds – to fund the acquisition of a gold stream from Vale SA.
However, people familiar with the deal noted the initial sale price didn’t offer enough of a discount – just 3 per cent. (Bought deals are typically sold at discount prices to lure new investors.) There was also fears that the returns Silver Wheaton will receive on the new stream aren’t that high, and if so, it could mean the company will have trouble acquiring profitable streams in the future.
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