SPAC Rights Basket

Pitch: SPAC rights are an ideal way to play the sponsor’s incentive to get a deal done. These rights are currently mispriced, trading at <$0.2 vs $0.64 fair value. The rights usually entitle the holder to one-tenth of the ordinary share upon deSPAC. The % of SPACs that haven’t found targets and have been liquidated (i.e. rights expired worthless) is very low – since 2016 there have been 11 liquidations or only 2.9% of 360 closed SPACs. This % will increase due to a large amount of SPAC issuances in recent years, nonetheless, the probability of liquidations should remain low given the incentives and sponsors’ innovative efforts to close SPAC deals even with significant redemptions.

Given the chance of a right expiring worthless (in case of no-deal), the basket approach is the best way to play this. This basket includes selected rights on 20 stocks: $ENER, $IGTA, $DWAC, $KYCH, $SAGA, and + 15 others.

Valuation: 80% chance SPAC merging and the deSPAC down 20% to $8, implies fair value of $0.64/right. Even a punitive 70% decline post deSPAC (i.e. $3/share) implies $0.24/right. Some rights trade at $0.15/right now.

Exp. gain: 3x upside

Commentary pushback: “By virtue of having the rights, I believe these SPACs are lower quality and less likely to get a deal. <…> you have now added 10 percent more dilution making them less desirable to targets.”

Full SPAC rights write-up (free guest account required):
https://www.valueinvestorsclub.com/idea/KEYARCH_ACQUIS_CORP_-REDH/2619402542

Published on: May 24, 2022  •  Published by:
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