Tag: finance

New rules around Special Purpose Acquisition Companies


The recent SEC rule changes for SPACs have sparked conversations across the investment landscape. While some view them as a blow to these “blank check companies,” I, like many others, remain optimistic about the future of SPACs as a valuable tool for entering the public market.

The new focus on enhanced disclosures and stricter projection guidelines is undoubtedly a positive step. Transparency is crucial for investor trust, and by requiring SPACs to shed more light on their operations, compensation structures, and target companies, the SEC is promoting more informed decision-making.
However, as a SPAC operator myself, I believe the underlying power of this instrument remains strong. Let’s demystify the advantages:

1. A Smoother Path to Public Visibility: Compared to the traditional IPO marathon, SPACs offer a more controlled and predictable journey. Costs are upfront and transparent, eliminating the uncertainty of fundraising rounds. Moreover, having completed much of the due diligence during the SPAC formation stage, companies merging with SPACs can hit the ground running as publicly traded entities. This “IPO-as-a-Service” approach streamlines the process and minimizes disruption to business operations.
2. Leveraging Financial Strength: Strong balance sheets give companies an edge in navigating the capital markets. This pre-IPO stability translates into bolder and more achievable future projections, setting a solid foundation for their public life. With less financial pressure after merging, companies can focus on execution and delivering on their promises, building investor confidence.
3. Focus on Fundamentals over Hype: The increased disclosure requirements mandated by the SEC will help shift the focus from speculative projections to the company’s core strengths and potential. Investors will have access to richer data and deeper insights, enabling them to make informed decisions based on actual realities rather than hypothetical “moonshot” scenarios.

Of course, adapting to the new regulatory landscape will require strategic adjustments. As a recent SPAC operator who prioritized transparency throughout the merger process, I am confident that embracing these changes will ultimately strengthen the SPAC ecosystem and foster healthier, more sustainable ventures.

In conclusion, while the new SEC rules undoubtedly reshape the SPAC landscape, they represent an opportunity for growth and maturity. By embracing transparency, leveraging financial stability, and focusing on fundamentals, SPACs can remain a powerful tool for companies and investors alike. Let’s approach this evolution with optimism and work together to build a better, more informed public market for the future.

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Disclaimer: The views and opinions expressed in this blog post are solely my own and do not necessarily reflect the official policy or position of any organization I am associated with. These views are personal and are provided for informational purposes only. The information presented here is accurate and true to the best of my knowledge, but there may be omissions, errors, or mistakes. Any reliance you place on the information from this blog/post is strictly at your own risk. I reserve the right to change, update, or remove content at any time. The content provided is my own opinion and not intended to malign any individual, group, organization, or anyone or anything.

AutoFinance – is it the next bubble?

While the economy was booming after the last downturn in 2009/10, the average loan being taken on by the consumer went up from around $25K to around $31K for a new car. All this while, adding about $1.2T ( Yes, Trillion) in auto loans.

I found an interesting article which can be read here:

Some Kind Of Auto Lending Crisis Is In The Making

Auto lending in the midst of an economic collapse is never pretty, as people stop paying on their car loans to divert money to more immediate necessities like food and shelter. This collapse is no different.

Exhibit A: Credit Acceptance, one of the biggest subprime lenders in the country (and one of the most unsavory). It had this to say in a report filed yesterday with the Securities and Exchange Commission:

In an attempt to slow the spread of COVID-19, state governments have implemented social distancing guidelines, travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These actions have caused economic hardship in the areas in which they have been implemented and have led to an increase in unemployment and resulted in many consumers delaying payments or re-allocating resources, leading to a significant decrease in our realized collections.

In short: an unspecified number of people have stopped paying on their car loans, the full extent of which Credit Acceptance can’t reveal yet.

If all of that is to be somewhat expected—Credit Acceptance’s business is lending money to people who might not be able to afford it long-term—a somewhat more alarming situation is in a different report out this week.

Exhibit B: Ally Financial, which was founded over a century as the lending arm of General Motors. It was known as GMAC until, er, the last economic crisis about a decade ago, a few years after GM sold a majority stake in the business. Today by volume it is one of the biggest auto-loan lenders in the country; Monday it said many of its more reliable borrowers weren’t so reliable anymore.

From Bloomberg:

Ally Financial Inc. said 25% of its auto-loan customers have asked for payment deferrals, and the vast majority have never been delinquent before.

Of the 1.1 million borrowers who requested forbearance, more than three-quarters have never asked for a deferral before and 70% have never had a late payment with Ally, Chief Financial Officer Jennifer LaClair told analysts during a conference call Monday.

Exhibit C: Lenders like Volkswagen Credit, which said last week it was waiving payments for six months for some people who have lost their job because of the virus. It’s a preemptive admission that you can’t get blood from a stone, I guess. But that also came with some stipulations:

To qualify, unemployment must not occur within the first 90 days of ownership. The customer must have lost their job because of economic reasons and must be collecting unemployment benefits. Customers also must have been employed full time at least 12 consecutive weeks before job loss. The offer is good for 12 months from the date of purchase.

The program does not cover leases, and it is not available in New York.

The lending arms of most of the other big automakers are also offering various deferment plans for borrowers, which delay payments until the end of the loan. Edmunds says that most lenders prefer to deal with customers on a case-by-case basis. The best thing you can do if you can’t make your payment is to reach out and try and strike a deal. I myself fear that increasingly many borrowers won’t even be able to afford that.