ECN Capital raises $100 million preferred equity
This space is usually reserved for corporate quarterly reports but instead this is a significant press release.On November 23 ECN capital announced that they would be raising $100 million in a private placement deal with five banks.The issue will be for 4 million shares at $25.00 per share.There is also an option for another 2 million preferred shares if exercised.The shares have a yield of 6.5%.They can convert the shares to Series B preferred shares on December31,2021 and every 5 years after.The shares can be redeemed at par on the anniversary or at $25.50 otherwise.
A Relatively High Cost of Capital
Steve Hudson, the CEO has proven to be an astute financier and businessman in the past.But raising $100 million in a preferred share issue has it's tradeoffs.This cost is well above the yield on their common shares,at 1.5%, and even above the cost on long term debt.But Steve Hudson may be looking down the road as the ideal plan would be to convert the series B preferred shares to common shares and offer a bit of a discount to the market price.In five years time (the anniversary date) it is easy to see the common shares trading at $5 to $7 a share.This would result in the creation of 15 to 20 million new common shares.But that would mean the total number of shares would only go from 386 million to about 400 million and this would only dilute earnings by 15%.This would be the way to go and the cost of capital would be equal to the dividend or about 1.5%.All financed by the growth in the price of the ECN common share price.
A Relatively High Cost of Capital
Steve Hudson, the CEO has proven to be an astute financier and businessman in the past.But raising $100 million in a preferred share issue has it's tradeoffs.This cost is well above the yield on their common shares,at 1.5%, and even above the cost on long term debt.But Steve Hudson may be looking down the road as the ideal plan would be to convert the series B preferred shares to common shares and offer a bit of a discount to the market price.In five years time (the anniversary date) it is easy to see the common shares trading at $5 to $7 a share.This would result in the creation of 15 to 20 million new common shares.But that would mean the total number of shares would only go from 386 million to about 400 million and this would only dilute earnings by 15%.This would be the way to go and the cost of capital would be equal to the dividend or about 1.5%.All financed by the growth in the price of the ECN common share price.
Growth Prospects
This money could be used to increase the number of ECN outlets and grow organically.Their niche is to finance rail and aviation assets and they could probably increase total assets financed by another 20% easily with cash left for other endeavours.They also finance aviation assets and this is considered a little safer because of the larger value of the asset. Business could be increased here organically as well.But a small acquisition or a part share in one might do wonders for it's share price and Fiera Capital,for one, would be a neat acquisition.Also starting a new product line in construction equipment might be very accretive.There are a number of possibilities but look for something new before the end of the first quarter of 2017.
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