Blank-check companies have taken an epic battering, but for patient investors, the collapse creates a chance to make some easy money from a quirk in the structure of these vehicles: their holdings of Treasury bills.
By one reckoning, scooping up shares of special-purpose acquisition companies that are trading at a discount to their cash in trust could earn the buyers about $3.45 billion, according to data compiled by Chicago-based SPAC Research.
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It’s possible because SPACs, which raise money from an initial offering to fund a future takeover bid, must hold the money in risk-free Treasury bills until they complete a merger. If shareholders don’t like the eventual target — or if a SPAC fails to find anything by a set deadline — investors can redeem their shares for cash at the IPO price, plus any interest earned.
With 717 active blank checks either looking for deals or on track to complete them, and more than 600 trading at discounts, investors who buy at the depressed prices could earn annualized returns averaging 3.6%, according to data from Accelerate Financial Technologies Inc. Some of the upsides could run as high as 21% annualized.
It’s a “phenomenal opportunity for fixed-income investors,” according to Julian Klymochko, the chief investment officer at Accelerate, which runs a SPAC arbitrage exchange-traded fund that’s taking advantage of the sector’s turmoil.
“SPAC arbitrage allows investors to generate yield in the mid-single-digit range with minimal risk,” Klymochko said in an interview. What’s more, “if the market turns around in terms of sentiment, those single-digit returns can become double-digit returns.”
Read the full article here by Bailey Lipschultz, Advisor Perspective
