Markets

Capital Demand Keeping BDCs in Capital-Raising, Deal-Making Mode

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Business development companies are getting rock star treatment at the moment, soaking up the love from yield-hunting investors and small companies seeking capital for growth, recapitalizations and special situations like management buyouts. BDCs typically provide preferred equity and a variety of fixed and floating-rate debt, from mezzanine to senior secured first-lien loans, and often charge 10% to 20% for the capital. As regulated investment companies, BDCs are required to distribute at least 90% of their investment income to shareholders in dividends. Ten BDCs have completed IPOs since 2011, according to a recent report by law firm Sutherland Asbill & Brennan, and several are in registration. In late March, Goldman Sachs Group (GS) filed with the Securities and Exchange Commission to take a newly formed BDC public.

Markets

Old, New Players Drive April EPP Market

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A recent flurry of growth equity deals highlights the mix of old and new investors that currently comprises the equity private placement (EPP) market. Relative newcomers Sabby Management and Aspire Capital Partners have invested in 16 deals (including structured equity lines) this year, five in the last two weeks in April. And while some many pioneers like Laurus Capital Management, NIR Group and Yorkville Advisors have left the market, old hands like Deerfield Management, Iroquois Capital and Downsview Capital continue to invest in private placements from a wide range of issuers. In the last two weeks of April, some 46 EPPs raised $984 million, including four ATM transactions which did not disclose proceeds. While common stock deals such as ATMs and CMPO have dominated the PIPE market, the recent flurry of deals included ten fixed-price convertible debt or convertible preferred offerings.

Markets

Iroquois Gets Active with Gale Force Petroleum

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Gale Force Petroleum (GFPMF), a Canadian energy explorer, has elicited an activist investor effort from longtime PIPE market investor Iroquois Capital. On April 25, Iroquois sent a letter to the Gale Force board of directors and criticized its performance and its credentials for managing an oil company. "In today's letter to the Board, Iroquois outlines its serious concerns regarding the Company's abysmal underperformance under the stewardship of the current Board and management, including the severe mismanagement of Gale Force's otherwise valuable assets," Iroquois said. According to Iroquois' letter, the hedge fund owns 7.6% of Gale Force's stock. "We believe the Company lags behind its peers in nearly every relevant metric, leaving Gale Force as an underperformer in the marketplace," the letter said.

Markets
Biotech

Sabby Brings New Deal Flow to Growth EPPs

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Sabby Management is one of the new crop of growth capital investors that have entered the PIPE market as it has evolved into a space where ATM and CMPO deals have become more common -- and small unregistered offerings have fallen off. According to data from Sagient Research, so far this year funds managed by Sabby have invested in seven deals, more than any other investor including active traditional PIPE funds such as Hudson Bay Capital Management, which has been involved in five transactions to date. In terms of capital deployed, Sabby invested a total of $24.6 million, while Hudson Bay invested $7 million. (Some long-time PIPEs players like Hudson Bay are still active. Deerfield Management, an active PIPEs investor since at least 2000, has been one of the bigger buyers in terms of dollars this year, putting $36.5 million into four PIPEs.)

N.J.-based Sabby's Sabby Healthcare Volatility Master Fund and Sabby Volatility Warrant Master Fund have invested $35.6 million in 35 deals since December 2011.