Conversations in Economics: Banking Systems

A Beginner’s Guide to Private Investment in Public equity(PIPEs)-PART(3/3)

Programming Note : We will complete the guide to PIPEs by looking at sample deals.

SAMPLE PIPE DEALS

Case Study 1: Berkshire Hathaway’s $5B investment in Goldman Sachs.

Background: This was during the 2008 financial crisis when Warren Buffet’s Berkshire Hathaway helped provide much needed liquidity to Goldman.

Securities issued: $5B worth of perpetual preferred shares (with annual dividends of 10%) + $5B worth of warrants at a strike price of $115 (exercisable within a 5-year period. Buffet and Berkshire later converted the warrants to common stock).

Amount raised: $5B (Don’t get confused. …

A Beginner’s Guide to Private Investment in Public equity(PIPEs)-PART(2/3)

Programming Note : As promised, part 2.

Mechanics of PIPE deals

There are two main types of PIPE deals: the traditional and the non-traditional PIPE deal.

Traditional PIPE v Non-traditional PIPE

In a traditional PIPE, the investor buys the issuing company’s equity at a fixed, discounted price (to the market price).However, the investor can not turn around and immediately resell the securities it bought on an exchange.(The discounted price is the issuing company’s way of compensating the PIPE investor for being unable to sell the securities immediately).For the investor to sell…

A Beginner’s Guide to Private Investment in Public equity(PIPEs)-PART(1/3)

Programming Note : My last post, I indicated I’d be speaking of other ways companies finance. So, today we will talk Private Investment in Public Equity(PIPEs).To make it digestible, I have it in 3 parts just as I did with the piece on Sovereign debt defaults.

PIPE investments are just one of many ways public companies/businesses finance. You are probably tired of me saying this all the time but companies typically finance via either equity or debt. Or some combination of both(what we call mezzanine financing).Every time. Having said this, it’s…

GOING PUBLIC SERIES: The Beginner’s Guide to the IPO

Photo by Nicol on Unsplash

Programming Note: This is meant to be part of a series of articles on taking private companies public. In future articles, we will cover Blank Cheque Companies/SPACS, Direct Listings, Dutch Auctions, Secondary offerings and PIPEs.

Talk to the broken ones, they will teach you what is real. How to live alone. How to finish. And how to start all over again”-Sahil Verma

Imagine you started a business selling phones. You took startup capital from investors and now they are pressuring you to go public so they can sell their part of…

Photo by Fernando Tavora on Unsplash

So, Elliot decided to do something really interesting. Every time a company or country borrows money it has a parri passu clause. Elliott went to a US court and got a judge to enforce the clause

Quick Sidebar: Nobody really knows what exactly it means but it’s generally interpreted to mean that all bondholders should be treated equally.

This meant that Argentina could not keep paying those creditors who agreed to the haircut (30 cents for every dollar) without paying Elliott and co. But think carefully, how does a judge in one country force another country’s government to follow through…

xkcd.com

Quick Sidebar: Vulture funds buy distressed debt, companies and securities. They prefer to buy, from original owners, debt that has no chance of being paid back or even if it is paid back will be done on vastly inferior terms. Then they use legal rigmarole to get the full amount.

This was exactly what Elliott had done. It sensed the opportunity when Argentina refused to pay back. It bought the Argentine bonds from the original investors at a deep haircut and was planning to force Argentina to pay the full amount of the bond. The timeline looks something like this…

source: xkcd.com

Programming Note: Next week, we will talk of Nikola, an electric car company. I’d like to look at Nikola business-wise. We will dissect history and motivations? Can it compete with other autos/auto-adjacent companies-Tesla, Waymo, Daimler, etc? And then I will talk a bit about the SPAC Nikola used to raise money (brilliant piece of financial engineering)

*I have a small guide on fixed income investing in Ghana. The first few pages cover interest and coupon rates, bills and bonds. All simple stuff. You don’t need to read it to understand what I have written here. Comment/let me know if you…

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Seasons of Feast; Seasons of Famine

I have a lot of notes from 2017, 2018 and early 2019, mostly on world domination: notes on delivery and accounting systems, doing the books, reminders on meetings and employment and hiring processes.

Of course, this was all before running into the teeth of the FDA, whose misbegotten alliance with the authorities at the port,along with an errant supplier chopped me down to size. It was bad for my self-conception.The result: destruction of capital and a tally of promissory notes longer than a shopping list. Good Times.

The Fence-Sitters
An unintended corollary of…

Photo by Markus Spiske on Unsplash

Unfold your concern

from Interstellar: ‘Now, we are just here to be memories for our children’

And every day, you nod to that responsibility by doing what’s best for them. What you want, your goals and ambitions are only important in so far as they align with what’s best for them and what will be better for them years from when they are born. Now, your job is to be a part of their potential, their promise, just as your parents were for yours. Its humbling but also strange, a salutary effect of living on this sublunary world. …

Samuel Amankwah

I write about finance and business;life-long learner

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