Morris Manning & Martin, LLP

Additional Offering Structures: PIPEs, Equity Lines And SPACs

Overview of PIPEs and Equity Lines of Credit

PIPEs, an acronym for Private Investment in Public Equity, have become an increasingly popular vehicle for public companies to raise money. PIPEs offer a relatively quick way to raise capital and often are used when more traditional sources of capital (such as bank debt or public offerings) are not available or cannot address immediate needs for capital. PIPE transactions are most frequently used by small-cap and micro-cap companies that have limited access to the public markets and may not meet the underwriting criteria required by traditional lenders. Historically, the largest single group of PIPE investors are hedge funds. However, an increasing number of large companies are turning to PIPEs to raise capital. Additionally, more private equity groups and other types of investors are purchasing securities in PIPE transactions. For example, in January 2007, Sun Microsystems announced a PIPE transaction in which it sold $700 million of convertible notes to Kohlberg Kravis Roberts. In June 2006, Sovereign Bancorp announced a PIPE transaction in which it sold a 19.9% equity stake to Grupo Santander, a large Spanish bank, for a purchase price of approximately $2.4 billion.

Download File