Yet Another Value Podcast - Louis Camhi on the opportunities in the SPAC market

Episode Date: March 7, 2022

Louis Camhi provides an update on his thesis for ORGN and then walks through where he's finding opportunities in the SPAC market today.Louis's first podcast appearance: https://twitter.com/AndrewRangeley/status/1428710432848613377?s=20Chapters0:00 Intro1:45 Origin Update5:55 Origin today versus their SPAC projections8:45 When will we start seeing unit economics for ORGN plants?12:55 Talking about the SPAC market today17:30 Opportunities in current SPAC IPOs21:30 What pre-deal SPACs does Louis like currently?23:20 What to make of companies that are flying after the deSPAC27:30 Are pre-deal SPAC warrants attractive right now?36:45 CND / Circle45:40 What to make of deals like FMAC that reward shareholders for not redeeming?49:00 SPACs with rights like BENE and ESSC

Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have back on. Lewis Cammy, Lewis, a new title. He is the founder and CIO of RLH Capital. Lewis, how's it going? It's great. Thanks for having me back. Hey, thanks for coming back on. Let me start this podcast the way I do every podcast. First, a disclaimer to remind everyone, nothing on this podcast is investing advice. Please consult a financial advisor, do your own work, not investing advice. Second, with the pitch for you, my guess, you know, people can go listen to our first podcast back in August for the full pitch. But since then, some pretty big news. I said new title, you launched a new fund that's focused exclusively on SPACs and maybe DSPACs,

but I think mainly on SPACs. So I just want to congratulate you on launching the new fund. Thank you. It's exciting. And even though I would say SPACs are probably the most hated asset class right now, I just still think there's a lot of opportunity and a lot to be done. Hey, I 100% agree with you. Sometimes I post some of the blog so much on SPACs. I'll get emails from people that are like, hey, that's probably enough on SPAC and I get it. But I just think, you know, especially DSPEX are really, we'll talk about all of it, but DSACs are super hated right now.

And SPAC are, you know, I just love the free optionality. We all want to catch the next DWAC, but we'll talk about all that. Let's start maybe, I want to hit three things. Opportunities in SPACs, opportunities in these SPACs, and maybe a quick update on origin, which was the focus of our last podcast. It probably makes sense to start with the update on origin. The ticker there is O-R-G-N. I'll remind everyone, smaller cap company.

They're hoping to hit EBITDA positive review in 2025. They're building out some plans. So please do your own work. There's a lot of risk here. But that out the way, I'll just turn it over to you. What's been going on with origin since our last podcast? Sure. So I can't believe it's been over six months since our last podcast.

I kind of thought it had been like two or three in the back of my mind. But yeah, time just flies. No, same. And so I looked up, I was just curious, like, where's the market? Where's origin since we last spoke? And origin's basically flat, which is interesting because while I love the company, if we take a step back and think about the macro, origin is everything the market doesn't like right now in terms of, you know, very early stage, non-revenue generating, etc. But, you know, unlike a lot of these other SPACs or companies more broadly that, you know, haven't executed on their plan, origin's been executing pretty nicely. And I know,

know that's a weird thing to say when there's no revenue, but they laid out kind of all their targeted dates when they want to have each step of construction done and thus far they're running ahead. So it's nice to see a SPAC with solid execution. So just to kind of run through the update, you know, when we spoke, it was right after they announced their second quarter earnings. Their backlog was $3.5 billion for their pipeline. Now it's $5.6 billion. So, you know, I don't think anyone has, anyone who's bullish at least has never questioned the demand, but you're seeing a lot of healthy growth. They announced the site for Origin 2, and more importantly, and I think they did an okay job of messaging this, that they're now fully funded. And so the reason it's a little confusing

is so they received a $400 million allocation of municipal bonds from Louisiana. And there's a provision in the 2021 Infrastructure and Job Act that states effectively that if you're involved in decarbonization, you can get a multiplier on an allocation for municipal bonds. And so with that really means is they're going to be able to finance the entire cost of Origin 2 using tax-exempt bonds, which is effectively the second lowest cost of finance after, you know, government bonds. And so, you know, I think that's a big positive that you've now taken, you know, financing risk off the table. The demand service being played out. And so, you know, someone on Twitter asked this, I think the initial plan is to build Origin 2 with one train. My understanding is that the

second train can be added at any time and they're going to can you what is a train what what is the difference between the first think about it as your your ability that your capacity right when they laid out kind of their base case and their upside case their upside case was we can build another train at our current location and so when i spoke to them and i asked them that very question he said they said look we can build a second train at any point so what we're really going to evaluate is does it make sense to build a second train or does it make sense to pull forward construction on origin three and so So I think that's something we want to be pushing them on over the coming quarters to see, like, what are the pros and cons?

What are the timing costs, et cetera? But it sounds like we're going to get that capacity, regardless, it's just a matter of is it in the wrapper of a trainer and the wrapper of another facility. And so the other thing that I was excited to hear them say is they reiterated their capital budget. Obviously, we see, you know, inflation is off the charts. I'm really curious, you know, they're, these guys are conservative, but you got to think with oil prices where they are now that their pricing power is significantly higher because the cost

of the incumbent plastic is going to be that much higher. And then, you know, just with respect to timing, you know, they reiterated the timeline. But if you go through the investor presentation, they show that the evaporator module was bolted on three months out of schedule, the piping fabrication six months. So I think there is some optionality of an upside surprise for Origin 1. At the end of the day, you know, whether this, you know, my thesis has nothing to do with, you know, whether this comes on at the end of the year or, you know, a few months earlier. But, you know, positive is good. And someone asked the question, why haven't they revised forward the timeline? And I just look at this market and think they're not going to have any credit. If they said, okay, instead of the

end of Q4, we're going to come on at the beginning of Q4, no one's going to care. Heaven forbid, they say we're coming on the beginning of Q4. It ends up being the middle of Q4. People are going to hate that. And so I think they're being very prudent in their approach. I look, I will just say not an expert on the company, but, you know, having spent a lot of time looking at SPACs when I was updating for this project, like people who are watching on YouTube can probably see me looking at their deck. Like, as I was getting ready for this podcast, I was really impressed by, they do this thing where they show, hey, here's where we projected when we did our deal. Here's where we updated kind of at our analyst there or whenever. And here's what we actually achieved. And like everything they've said, they've beat often by, you know, several quarters, some of it several years.

years. And I was just really impressed because anyone who's followed the SPAC world, as we'll probably talk in a second, like beating schedules and coming in under budget or on time is not exactly what you see from SPAC. And I think that's what you said in the original podcast, right? You were like, this is a real team. Yes, they're going public through a SPAC, but these are real guys who are like really serious. And I also really like that they're going, is it Geismer? Is that Geismer, Louisiana? I'm from New Orleans. I spend a ton of time in Bad Rouge. I was down there just a couple months ago and Geysmer's right between New Orleans, Bad Rouge. I've never been there, obviously. It's very small. We're going to send you for the site visits then.

You know what? I'm going back in April for a wedding. So maybe I'll try and sneak out and take some photos. You guys will get some photos of me in hard hats. Love it. Anything else we should be talking about origin? Yeah, just real quick. So the idea of partnerships and licensing comes up a lot. People ask, I ask them every single time I speak with them. You know, current plan is to go out of it alone. They're saying they're probably will be partnerships, but you know, you just can't adjust the timeline. It sounds like there's two types of potential partnerships. One is for customers who say, you know what, we need our own plant. Like, we just have such high demand. And so they will build a plant. It'll be all theirs,

and they will pay a royalty licensing component back to origin. Or the other is, you know, they'll partner with the chemicals player. I know Dow gets thrown out there a lot. We'll use them as an example. I have no idea if Dow's, if it could be Dow or Chevron or whoever. And, And similarly, like in their efforts to go green and focus on ESG, you know, they'll invest in the cost of the plan and similarly pay a royalty. So, you know, I think those things happen. I have no idea when. Intuitively, it makes sense to me that they're kind of, they happen with Origin One launching because I think Origin One really de-risks the construction risk. And, you know, the other thing, two other points, people are asking for more disclosure.

I've been working at hedge funds for most of my career. I've never gone up to a company I was covering and say, give me less. And so I think that's normal. We always want more, as you know, Andrew, I'm on the board of a company. We have that same discussion constantly, what should we provide? Once you provide it, ones you always have to provide it. And so I just think that's, you know, we just have to accept that fact. On disclosure, let me ask you a quick quick.

So origin one, which is, it's not as big as origin two, but that is their first one under construction. They say it's on time, on budget, everything. It's supposed to be done by the end of 2022. so you'll get revenue from it from 2020 and people can go look like their decks i'm looking at their uh i think this is their march deck page 43 they even break out hey here's our next 10 years projected financials 2020 the revenue starts coming online from origin one now they're still going to be ebid on everything negative because they've got lots of other costs but do you think they're going to really give lots of breakdowns on hey here's how profitable like isolate everything

else here's how profitable origin one specifically is I don't know factually, but I hope so because as an analyst, what you want to see is how do those unit economics compare to the deck? And if they're remotely close, I think we're in really good shape. And if they're not, we may not be. And so they know that and I think they want to show. And the other thing is when they show those unit economics, it kind of gets the partners talking, right, potential partners. Like, oh, wow, look at those economics. We should be involved here. And so I think there's a lot of reasons for them to do it. And because of their IP. They don't have to worry about, hey, if we show our unit economics, we'll trigger the next

guy to start building plants because they just don't have the know-how. Let me just one more question. This is a little off the cuff. There's the old thing, like a lawyer never asked a question he doesn't know the answer to. Well, a podcast host does ask a question he doesn't know answers to. But, you know, I think back when we were talking in October, a lot of people were excited about origin when they would look at Danimer Scientific, right, DNMR. And I know they're not perfectly. They're not the same, obviously. But Danimer at the time we were talking, was trading at like 15 or 20 or something, right? And that had come down from peak of almost 50. And as you and I are talking today, the stock is under five. And again, lots of difference between

the two companies. But, you know, if there's similarities, I would look at the Danmer price and say like, okay, yes, that company's not executing, origins executing. But does the Danimer price give you worries that, hey, maybe there's not the pot of gold at the end of the rainbow for Origin, just based on kind of how Danimer has been acting. Because Origin right now, they raise a lot of money. They're trading for a little bit above the value of their cash, but not much. Maybe that's doubt, but maybe it's people saying there's not a pot of gold once these get built.

Well, I honestly don't view Origin as having cash, right? Because even though it's on their balance, it's all committed. And so, like, when I think about valuation, I think about like, let's pretend they spend the cash. Let's pretend they have the debt on their books from this facility. And that's kind of, you know, so in my mind, even though they're in that. cash, they're really net debt. I know that makes no sense, but hopefully that is when... No, I 100% get you. I 100% get you. On Danimer, you know, they decided, and I don't know

if Danimer that well, but they decided to go do an acquisition. As a result of that acquisition, they no longer had the cash to finance their facility. And so at a tough time for companies like this, they were forced to raise a convert. And then you have the convert our guys come in, like, I know David Einhorn in his letter, you know, he's still bullish Danmer, but he said, like, we were surprised about this convert until we dumped our comment and bought the convert. It the better security. And so, you know, I don't think it's, I'm not looking more into than that. Like, these companies are all hit. They need to execute. The nice thing for origin after, you know, everyone was, I should say everyone, people were worried that, you know, because of their high

redemptions, which I think we're 60%, which would be like a bull case for us back today. But because of high redemptions for them, they were people were worried that they wouldn't have enough capital of finance origin two. They've now announced that, you know, that risk is off the table. And so I just, you know, the hard thing is when people say, like, what gets the stock up? And I think it's, it's two things. One, I think our catalyst is origin one. And two, it's just more macro-oriented. Like, origin's not going to massively outperform in a market like this that, you know, does not like, you know, let's call it BC stage companies.

Yep. I do like that, you know, origin insiders have been buying, you know, fairly aggressively. No insider sales, all insider buys. Boone, who is the SPAC sponsor, plans on buying quarterly, and he's been doing so. So, you know, people are definitely putting their money where their mouths are. Yep, yep. And, you know, the buying started at $5, $6, and now we're talking, it's kind of approaching $5. So they've been buying higher than current prices.

Anything else you want to update on origin, or should we turn over to the SPAC market? Let's go SPACs. Great. Well, look, I think you actually said something in there that is a really nice transition to SPAC. So just you said, origin at the time they did the deal, there was 60% redemptions. And people were like, oh, my God, what an awful disaster. And today, I think there'd be a lot of SPACs who would be, you know, shooting fireworks since the year if they only had 60% redemptions.

We're seeing some specs that are like 99.5% redemptions or something. So the average redemption rate in February was 88%. It's incredible. It's incredible. And, you know, the way specs are trading after the deals go through, I don't know why you wouldn't redeem. But it is interesting, you know, I'll just give some brief of view back in last like January through March when SPACs were super hot. And I'm looking at SVFA as just one example. That is soft bank's first SPAC. The stock price was $11 per share. No deal, $10 in

trust, but a Buzzy sponsor in SoftBank. Stock Bank. Stock price is $11 per share. And it's all anyone wanted to talk about with me. Right. And today's SVFA is $9.78 per share. Guess what? They've got less than a year to find a deal or else they'll liquidate. So you're getting a 2% plus cash yield. And if they announce a great deal, the stock could go to infinity. No one wants to talk about. No one wants to touch it. And that's just one example.

You know, please do your own work, do your own thoughts. But that's just one example of just nobody wants to talk about SPATs. And I just see this great opportunity. So I want to talk to you to you, what are you thinking about, you know, pre-deal SPACs? Where are you seeing opportunities? How are you thinking about the market right now? Sure. Well, first and foremost, I want to say that the Twitter SPAC community.

is really fantastic. So we should we should start there. Tons of resources for anyone who's watching this and isn't as familiar, you know, do hashtag SPAC and you'll find a lot of content and some really smart people. Listen, going to your point, at one point last year, the average pre-announced SPAC was $11 and post-announced was $14. I remember looking at this and saying it's kind of amazing. The market's telling you pay 10% premium for cash and that will go to a 40% premium and that's a lot of money and it's all great until it's not. You know, right now the majority of SPACs pre-announcement post-ounce are trading sub-10. And so to your point, it's kind of turned into a fixed income type product.

Like when I describe some of the SPAC ARB stuff I do in the fund, I call it fixed income plus-plus. In your case, you know, the average yield right now is about 2.8%. And it's really interesting if you think about you're buying something that it has a 2.8% yield that's backed by treasuries in a JP Morgan account. So why people are buying treasuries yielding 60 basis points and not SPACs, I'm not sure. And I'm actually having that very conversation with a couple of corporates because they have big treasury operations and it makes no sense to me. But now you're actually getting paid optionality. Now this is a cost of capital question. You may say, you know, making 2.8% is not what I want to do, but it's 2.8%

plus. And in a lot of cases, you can buy the units for under. trust value, in which case, you know, you're earning a little bit of a cash yield and you retain all this upside optionality. And we should talk about warrant prices in a little bit, but warrant prices are so low right now that, you know, you have a good shot of making a, you know, mid to high single digit return with no risk. Can I just say, before we talk warrants, because I do want to talk warrant because I know you and I view them a little bit differently. But on the plus, my background with investors I've talked to recently is every. dismisses the plus, right? They say, oh, the days of February 2021 are over. No SPAC pops above 10 when they

announce a deal, you know, and that does feel kind of accurate right now. But I just keep pointing to them, look back to October, DWAC, which is the SPAT that's merging with Trump SPAC, you know, the day before they announced the merger is trading under trust value. As you and I are speaking, it's trading at almost $100 per share, right? That's a 10x on what was a relatively before the deal. you know, we're buying it under trust, a relatively riskless position. Now, obviously not everything's going to, I wish. I didn't have a decision to DW say, I wish I did. Not everything's going to do that. But, you know, it only takes one for that to it for your basket of, you know, Treasury securities that you bought it a 2% yield all of a sudden to yield 8% or something, right? So I think people are so

dismissive of that risk. And I think there's going to be a couple smart sponsors that find a deal that that causes a pop. And, you know, getting better than cash returns with that upside optionality, I think people are very dismissive of it. And I'm still not 100% sure why. Well, let's also just look at the last deal that price. I don't know anything about the sponsor. I'm not involved. It's called Shua Partners, S-H-U-A-A-U-A-U-A-U is the ticker. And it just IPO. It's trading at $999. It is $1025 in trust and offers a half a warrant. So you could sit there buy that paper knowing worst case in error, you make two and a half percent. Yep.

Best case, you know, that warrant is worth something and it's more. Or, you know, right now warrants are trading in about, you know, 35 cents average, give or take. So let's just assume as soon as it started trading, you sell that. So you're two and a half percent plus you're three and a half percent. You've made six percent. Like that is with no risk. Like that's, to me, that's a fantastic return. Now, you know, I tell people when investing in SPACs, like if you think this,

is before kind of the carnage of the last few months. Like if you think the NASDAs is going to go up 30% a year, this probably isn't the best trade for you. But if you don't, you know, I think, you know, the risk reward here is great. Yeah. And just on Shua, so I just put up the S1 as you were talking. And look, it's not just you're buying at, let's just call it 10 to make you, you're buying the units, which include a warrant at 10.

These guys have 15 months to do a deal or else they're going to return 1025. So 2.5% for 15 months. I mean, I think 10-year treasury yield 2.5%. So you're getting that great optionality there. And, you know, if they announce a deal, the warrant will have some value. Like, it's just, I just think it's a fantastic combo. And I'm with you for pre-IPO specs, every time somebody asked me, what's your best idea right now? I say, honestly, it's probably Pershing Square taunting, which I know everybody's burnt out on that, but you're buying it 1% below trust. They've got less than a year until they need to liquidate that thing. So you get 1%. And if they announce a deal, the thing could go parabolic and you get the taunting warrants and everything in there.

Like, risk, I get that it's not as high upside as a lot of other things people talk about, but risk adjusted, it seems tough to be. I completely agree. And so what we're talking about right now is kind of the safer end of the SPAC risk spectrum, which is where right now I mostly play as a fun, but there's just tons of these opportunities where it's, if all goes wrong, sorry? On the safer end, are you more focused on, so Shua, right, if you IPOed in February 2021, because the IPO market was so hot, you got great terms, right? $10, $10 in trust, very low warrants, 24 months, like all this. And then you just mentioned Shua, right, which was 1025 in trust. I don't know the warrants.

It's probably a half-hour potential time in trust. A 10-25 in trust, 15 months, if they want to extend, they've got to put extra cash in trust. So are you more focused on, like, the SPACs from yours? yesterday year that are often trading 975, you know, less than a year to go? Or are you more focused on the specs that are IPOing today that, you know, often treating 10, but 1025 in trust, but really tight terms. Does that make sense? Yeah, you know, it's a little bit of both. And the way I think about it is, for me, it's first sponsor quality and then some underwriter quality and then the terms. And so like I've always said when I was, you know, picking stocks, I'd rather

like have my list that this is what I want to buy, but it's too expensive. So I'll wait and I'll have that work done. And so similarly, I know this sounds kind of silly, but I have price targets on these facts where I, you know, assume I'm going to get my trust value back. I have a framework for what I think the warrant could be worth. And so it's simply as, you know, my downside case is getting trust back. My upside case is getting trust plus value for the warrant. I'll, you know, run that sort and then, you know, see, okay, of the names I'm interested in, does anything show up as being attractively priced? And the other things, oh, go ahead, please. I was going to say, you know, one of the other things that, you know, important is the liquidity here isn't great. So when you make

your buy, you should be prepared to that and sit with it. Yep. A hundred percent. Hey, you mentioned your focus on top tier sponsors, a little bit underwriting quality. If you can, what are some pre-deal spas that you kind of are interested in or taking out? You think readers should, listeners should maybe go take an eye at if they're looking to deploy some cash. Sure, at the risk of talking my own book, so full disclosure. And when I said listeners, I more meant what are some pre-deal specs I can go look at it. There's a SPAC called HIG Acquisition Corp. And why I think it's interesting is HIG is a standalone private equity firm.

And so unlike a lot of the SPACs that came to be because it was, you know, an executive or just a group of smart guys, this is a firm that, one, does deals for a living. Two, has access to financing and LPs, and three, has a pretty darn good track record. And so it's interesting because guys like this in the public markets, in the SPAC market, they don't have a KKR type name. But if you kind of do your research, you find out like, this is a very good middle market private equity firm. And so, you know, you look at this and, you know, you can buy, you know, the common right, or the units right now you could buy for $9.95 knowing you're getting. $10 back and a third of the warrant. And so, you know, in this case, also I would say a lot of the, you know, you can split it to is the common trading at a really high yield or the warrant's really

cheap. In this case, the warrants are really cheap. So the safe way to do it is to buy the unit. The riskier way would be to buy the warrant outright. But, you know, you can pencil out a pretty healthy return if they do a deal. And I would just assume that they would as a firm that does on a day-to-day basis with access to capital. That makes sort of, I want to ask about the warrants in a second, because I know you and I might have a little bit deferring views and talk about the, I think we're going to see wave of SPAC liquidation so we can wrap it all that. But I did have one question I've just been thinking in the back of my mind that I thought

you might be a good person to talk about. So two recent DSPACs, black rifle coffee, which trades now under BRCC, and System 1, which trades under SST. Both of these merged recently. And both of them, you know, typical for the SPAC market heading into the merger, we're trading right around trust, big redemptions for both of them. And now both of them are trading way above what the trust was, right? Trust is gone. So you can forget about that. But you know, the shareholders have the option, hey, do I want to own stock in this company or do I want to redeem it for 10? The vast majority of people in both cases chose 10. And guess what? That proved wrong because here we are a couple months later.

System 1's trading at about 1350, black rifle coffee is trading in about 1750. So I wanted to ask you, like, do you read anything into that? Or do you think it's just, hey, we have seen once SPACs have huge redemptions, often they just become trading sardines where people are flipping a really low foot. It's like, System 1, Black Rifle, a couple others like it, do you read anything into it where, hey, good deals that are undervalued? There's a lot of potential upside. Or is it more, hey, check in in six months because these got a lot of redemptions and they

It might just be there are options out and people are just trading them around. I think it's the latter. So let's start with System 1. System 1 had 99% redemptions. And so the flow right now is just so tiny. And I always say the warrants don't lie. The warrants right now are trading at $1.37, you know, which implies a high single-digit stock price.

And so they filed the S-1 for the warrants already. I would venture to say as soon as those warrants will come exercise. you'll see the common come under pressure. Lewis, do you want to pause for a second? And you can see this with a lot of companies. So DWAC, again, the Trump's back trades at 97, and the DWACW warrants trade for way below that implied price. But do you want to pause for a second and just explain to listeners who aren't super familiar

why the warrant pricing might be out of line with the stock and why that might imply the stock's going a lot lower? Sure. So you would look at the warrants of a DWAC and you'd say, well, there's a huge arbitrage opportunity here because I can create the common buying the warrants for much less than just buying the common outright. Just to give people the math there. So, DWAC warrants last I looked traded for like $10 per share.

And the warrant, sorry, it's $23 per share right now. The warrant lets you buy the stock for $11.50. So that would imply the stock is worth about 35. DWAC trades for 95. So there's a $60 per share arb there just to explain what Lewis is talking about there. That's exactly right. So you would say, okay, so what I'm going to do is I'm going to buy the warrant and I'm going to short the stock. The problem is right now I'm checking if you want to short the stock, it will cost you 117 percent. And since you don't know the timing or anything,

you know, it's just not really an actionable trade. Because you can't collapse the art and you're going to pay a huge cost for it. Yeah. And as as Lewis mentioned, it's because the warrants aren't registered, it normally takes some time. Once the warrants are registered, then you could actually exercise the warrants and collapse the spread, but the market's saying, hey, once the spread collapses, the stock's going down. And I'll just pause here to remind everyone, warrant arbitrage shorting, very risky. Please, please, please, please, you know, I basically avoid shortening at this point. Please do your own work and consider that. Any anything else on the, you want to talk about? On SST, the only difference is, so warrants can get are exercisable on the later

of one year post-IPO or 30 days post the deal, but an active S-1 needs to be filed. For SST, the IPO is in June 2020, so we're much past a year, and the deal closed at the end of January, so we're now past the 30-day marker, and so it's all about having an effective S-1. They filed their initial S-1. When that goes effective, is up to the SEC. It's usually within two weeks, but if that's right, within two weeks, those warrant to become exercisable and that arbitrage trade, if you will, will collapse, which means either the

warrants should trade up or the common should trade down. Historically, it's the latter that happens. Yep, perfect, perfect. Let's use that to transition to pre-deal spec warrants. I know, I'll let you explain the thesis, but I know a lot of people who make a really good argument, pre-deal spec warrants have been just so tossed out of the water. They're such cheap optionality. They represent a really interesting opportunity. Why don't you get a, that that thesis and that a view. And I've kind of had a different viewpoint so I can push back a little bit, but why don't you start by laying that out? Sure. So when I started investing in spec warrants, pre-deal spec warrants, it was 2015, and they were 40 cents. And so up until now, you would always

hear those, remember when stories? Like, do you remember when we bought the, you know, capital acquisition warrants at 40 cents and they went to two? Like, that was just amazing. Or we bought the Trinity you warranted 40 cents and they ended up getting taken out for a cat like and there were so many examples and obviously you never buy enough in hindsight but we're now the difference is you know back then there were much fewer SPACs but at the same time no one knew what a SPAC was so the ability to get a deal done was similarly as as challenging you fast forward now and it's okay so we're actually getting back there where I think I just saw before we helped on the median um pre-announced SPAC is 36 cents.

So we're back to those levels even a little lower. But I think it's really important when you kind of dig in and start segmenting kind of what sort of SPAC do you have. Who is the sponsor team, who is the underwriter? And for me, it's thinking about, do you have proprietary access to deal flow? Do you have access to financing, whether that's in the debt markets or equity markets? And are people going to trust in you to do a deal? And you can take the extreme, you know, the GORS franchise that's on their ninth SPAC,

they're probably going to do a deal, just my, you know, just my belief. When you look at kind of the KKRs of the world who have a SPAC, the ARIs, a huge private equity firms, I think they're going to get deals done. You know, Barry Stern, like complex, like they've dedicated a lot of resources to SPACs. I think those guys, they've dedicated resources, they have their own capital so they can step up to these deals. They have access to deal flow and other capital through their core business operations. I think those guys get deals done. And so I'd rather pay up for quality here, whereas just saying, you know, I used to look at a list years ago. It's like, what are the

cheapest warrants? And I think if you do that, you know, you get yourself in trouble. Again, I have nothing negative about these specific sponsors, but there is a host of warrants right now trading below 20 cents like you and I can sit here and say like that is so cheap but you know it's kind of like cheap for a reason and don't get wrong some of them can get deals done and those will be great pieces of paper but when I think about like where is the risk of liquidation it's the market's telling you it's in this list and like as I flip through it right now in real time like I don't see any names that I recognize either from as a private equity firm or a hedge fund or just a prominent financial institution. And similarly, and I don't think it's a surprise, you look at like the

underwriters, you're not seeing like a Goldman Sachs underwritten SPAC on this list, which I think tells you that, you know, people have more faith that if, you know, if you did your deal with Goldman, Goldman has a big M&A operation, they're going to find something to shove down your spec. It may not be a great deal. It may not be a good deal at all, but, you know, you'll get that that announcement. So let me just give a slight pushback to that. So I definitely hear that, and I breather's opportunity. I know people who run Monte Carlo models and say, look, at 40 cents, these things are by. And I was laughing when you were saying back in the 2015 days, because I've got a friend who's ex- Citadel, as I know you are. And when I talk to him, he's always talking

about. Literally the same deals and same warrants that you talk about. So I was just kind of laughing there. So I hear all that. But I do, I do worry, like, there are just so many SPACs out there that, A, we're, even with some Buzzy sponsors, we're going to see waves of deal failures and SPAC liquidations. And B, you know, even with Buzzy sponsors, so this is out there, but like ATIP, which was backed, I think that was Fortress, which took them private. And I know me and a couple other people took a back because you're like, oh, this is physical therapy, contracted out. And then that company, I mean, they're probably going to, they're probably going to file or have to restructure or something. And the stock goes from 10 to 2. And I worry, like, you buy these warrants at 40 cents, thinking, hey, the SPAC sponsors are, these are good SPAC sponsors that will announce to you.

And I worry the liquidations are going to come in a little higher than you think. And then every spag deal that gets done is going to go from 10 to six. And so you break even on the warrants that you do buy and you lose money that do get deals through and you lose money on the ones that liquidate. So all in, you're like break even or lose a little and your opportunity cost is just awful. Does that make sense? Sure. But I'll push back a little bit. So, you know, a $6 stock usually has a warrant that's around a dollar.

and so like your real risk it's exactly what you said if you're buying these it pick your number 40 cents i'm buying mine a little bit higher because i'm skewing for quality um you know there's a big question of like these smart sponsors can they figure out what the market wants right now right and if you take a step back as much as we're all probably sick of talking about nicola right nicola was the first big eB spec if you were paying attention you saw it go from 10 to 80 and so every other their sponsor said like, okay, this is what the market wants. They want like something conceptual, something futuristic. They don't care that there's no car product. And so they did all these EV deals and that worked at a time. And I think the sponsor community is fairly smart. So it would be

unrealistic for them to say like, you know what? The market wants like cash flowing companies with some growth and a reasonable valuation. So can we figure out a way to do a deal that sticks at 10? Or I joke around. If a sponsor can do a deal that only destroy. raise 20% of value, so eight bucks, the warrants are worth $1.70. If you're buying them at, you know, 50 cents, that's a triple. And so now we get into, okay, well, what's your liquidation rate? Because you obviously it's zeroed. And, you know, we'll find out. But my view is that it's lower for these higher quality sponsors and it's probably higher for these lower quality sponsors. Like some of the sponsors that are going out now and doing one year term, full warrant,

overfunded trust. It looks great to the IPO investor, but it just makes it that much harder to do a deal. Makes whole sense. Makes so sense. So you mentioned Gore, a lot of the private equity sponsors, any under the radar sponsors that you think the market's discounting a little bit that you think are interesting? So I mentioned HIG just because, you know, same setup. Another one would be like one equity partners.

One equity partners was the old merchant bank of J.P. Morgan. Yep. So similarly, you know, private equity firm. You know, I've got a lot of them on my list. The question is, are the returns high enough for me? like I'm waiting for better prices, but, you know, like there's the TPGs, there's, you know, social capital to me is not interesting with the comment above 10, but you had your window a couple weeks ago where it dropped below. So kind of kind of my case and point of put these on your watch

list. And, you know, if you could buy something like that under 10, the church. A few minutes ago, I had mentioned soft bank, soft banks back, which is trading at 980. And, you know, if we had talked a few weeks ago, I would have used. IPOD and IPOF because both of them were below 10. And I would have said, look, every Chmoth spec has traded above 10 at some point. Like, you've got the optionality, buy it at 990. Yeah, if it liquidates or it's an awful deal, okay, you made 1% and your opportunity cost wasn't that great. But IPOF, here we are.

It's gone from 990 to 1035. And you keep hearing whispers from the Internet people, hey, maybe he's going to take SpaceX public. Maybe he's going to take SpaceX public. Yeah. And listen, and some other ones like below their end right, like Equip, distribution acquisition, EQD, that's Sam Zell. Like, when you think about ability to finance, he can write the pipe from his back pocket. He's probably got that cash in, like, lost in his couch.

And another one, you know, I know these guys, I think they're really good investors. There's a firm called Corsair. Their SPAC is Coursair partnering corp. CORS is the ticker. Same thing. They're a financially oriented private equity firm. Again, same pillars of they do deal. for a living. They have LPs. They have access to capital, et cetera, et cetera, et

et cetera. And so, you know, I just think that, you know, the odds of them doing a deal are probably higher than not. And because people don't know who Coursair is, because again, it's not a name you would know if you're just a public markets investor, you know, the warrants rate cheap, which makes the units look cheap. Yep. Yep. Let's see. Anything else we should be talking about with pre-deal specs? I wanted to mention D-SPACs really quickly. if that works, but anything else on pre-deal spats? I don't think so. We can talk about some, I mean, a lot of people are talking about CND and Circle,

which we can talk about a little bit if you'd like. Otherwise, we can definitely get into some D-SPACs, and I'm having shared the conversation that I've been having with SPAC sponsors on how to kind of navigate this choppy market. Yeah, let's talk C&D in Circle. I actually have had a few friends who were pinging me on it several months, once ago saying, hey, you should take a look, circles going crazy. And then they actually, I don't think I've ever seen a spec restriped their deal at a higher evaluation. So I'll stop

rambling. I'll let you kind of tell the story and why it's so interesting. I thought it was really interesting too. I had done calls with the companies. My background is in covering financials and FinTech. And this was kind of a nice intersection, even though to be totally clear, a lot of the crypto stuff is way over my head. But this was pretty straightforward. It reminded me a lot of a trust bank, very rate sensitive. And, you know, what I liked about it as you dug in is they assumed no interest rate hikes in the forecast. So you knew there was a lot of upside. And you could track the USDA issuance and you could see that there was upside the plan. So that got me really excited that you were going to have a SPAC raise numbers because, as we've talked about, you know,

that's not so common. And so what was interesting is the common was trading at 1050, which, as you know, was very good for its back these days. But it's also saying, it's a way to say the market thinks this, this asset is worth 5% more than the deal was cut at. Yep. And yet, they come in and double the valuation. And so I was pretty frustrated again. I spoke to the guys at Serk, I have a lot of respect for them.

They felt like they were in a good negotiating position. They had to recut the deal because their timeline with the SPAC was expiring. and they apparently just held all the cards. But if you think about it now, they get this nice valuation on paper. They lost the pipe. The stock is now trading below trust. So, you know, it's back in the hand of the arms from the fundamental guys. And the setup now just feels like they're going to face high redemptions and they'll probably need to raise a pipe.

And so the question for them will be, what term do they raise a pipe? Can they raise it a better terms in before, even if it's at a discount to the SPAC price? but you take a story that I think was really primed to explode from a stock standpoint, and you make it a lot more challenging. It's one of those like the business and the stock are different. The business is still fine and dandy, but could be harder for the stock. And the other thing they did was they updated their forecast to include the interest rate curve, the forward futures curve, which obviously, unbeknownst of them, you know, this whole Ukraine issue happened,

a lot of global volatility and turmoil, and now the futures curve has come down. And so all of a sudden you went from this. is a sure thing beat and raised to now, like, is there a risk? I don't know. It just gets a lot harder. Yeah. So we'll see how it plans out. It's also because circle, correct me if I'm wrong, Circle C&D, it took a really long time for them to get their deal done. And that's part of the reason why they had to restrike everything. And I've seen to like FTCV, which if I remember is merging with E Toro, and FPAC, which I think is really, really interested in. Optionality is merging with bullish. Both of them have taken way, way longer than

I would have suspected to get their deals done. And all of them, I mean, they're different, right? But all of them loosely touch on crypto. And I'm wondering if the SEC is just having big pushback on kind of SPACs that touch on crypto. Do you think I'm reading too much into that? No, I think you're exactly right. I've spoken to all three of those teams because I've noticed the same thing. And they just said, look, we're working with the SEC. We're giving them whatever they need. the SEC apparently hired some crypto guys a couple months back, so they're educating themselves as well. But, you know, FTCV, the deal was announced in March 2021. And here we are a year later. And so, you know, I've asked like the CND guys, when do you think your deal closes? And they'll say,

you know, we don't know. Like, we're ready to close now, but we're just waiting on the SEC. And, you know, FPAC bullish, they'll say the same thing. And so everyone's working really hard. You know, listen, there's another SPAC, it's entry called Queen's Gambit, GMBT. And I flag that one for two reasons. One, they've already beaten numbers before, during the DSPAC, and I think that's pretty interesting. But two, they filed an amended F4 last night. It's their fifth draft. And if you do a red line comparison, there's four changes. And they're all, as far as I've concerned as an investor, all immaterial. And so the SEC is clearly harping on all SPACs. And I would say it's a fair, you know, read that crypto even a little bit more. Is Queen's Gambit touching SPAT? I don't know who they're

merging with it. Does their merger touch SPACs or are you just using that as a general? Do you mean crypto or? Yeah, sorry. Obviously, it's not at all. It's effectively a ride share app. Do you remember, do you ever use VIA? Yes, I do remember VIA. So it's like VIA, but internationally in the Middle East and whatnot. And the unit economics are really interesting because it's, you know, Unlike Uber, where it's like one driver, one passenger, they're the drivers, the fixed cost. And as you drive usage, you actually grow your margins. But I just think that it's in, I flag that one because if you, you get up my attention, if you beat earnings and raise before you despaq, because again, this doesn't really happen.

And they've been able to accomplish that. So I've been trying to understand their de spec process. And when they filed last night, you know, first I sound alert. I was like, great, they're going to get their date and go effective. And they didn't, but you start flipping through and trying to understand, like, what's the SEC focused on? you come away kind of scratching your head like why are you stopping a deal for you know i i was laughing when you said they're merging with an international bea because uh i if you look at the stock

price of uber or lift or any of the international ubers are lift i uh i think queen scamp it might might be in line for some big redetions once that goes through you know very well could be the difference seems to be that they're so far beating like you know you look at something like a grab which, you know, grab really sucks for someone who likes the SPAC world as a whole because it's a quality sponsor. They structure the alignment, so it's well aligned. And obviously, it's still, you know, I'd poor results. Some of it, you know, I'm not that close to, which I can't tell you, like, what's macro versus they just were overaggressive. But it's exactly right. Like, these things have gotten hit. But again, I think the solution for a lot of the SPAC issue

is SPACs have come out and beat and raise numbers. It's really that simple. Like, I was speaking to a sponsor this week, and I said, whatever numbers you ultimately go out with for whatever asset you buy, I would seriously consider cutting them by 10 percent, having to fight that the valuation is not as cheap, but then, like, during your D spec, you beat and raise a little, and you're like, all these other beat and raise stories that we've seen. But, you know, I think, and there's no way to prove this. Well, there is a way. They've all missed. I think a lot of these spas that came out in early 21 and even Q221, they had to put out these really aggressive forecasts to justify the valuations and get the deals done.

And this is probably a good segue. I know you wanted to talk about these specs. When you report Q421 and give your 22 guide, that really could be the clearing event because you've taken your pain, you've divorced yourselves from these ridiculous forecasts that you originally put out, and now you may finally have level set expectations to beat and raise. And just because you didn't like a stock at 10 doesn't mean you don't have to like it at 4. Yep.

No, I'm with you. It's just such a tough balance. act for the SPAC though, right? Because if you lower the numbers too much, then everybody's going to look at you and be like, oh, I'm not interested in the spec on the announcement because the valuation's too high. And then you kind of beat, it's just a tough game. They're not interested anyway. Let's be fair right now. But like again, you look at deals like cone robins, right? I know that's a high profile one that people talk about. And you've got an asset at a reasonable price, very EBIT dot positive, very free cash flow positive. And you're able to look at, you're able to look

at something like that and say, if you do your work and you get comfortable, even if I really like this business and there's volatility around the D-SPAC, you know, they're generating cash. It's real. It's not a concept. And so, you know, does that mean you should put your entire portfolio into it? Like, absolutely not. But does that make it easier to own versus some of these other stories? I absolutely think so.

And, you know, we should talk about, and full disclosure, I'm long. CRHC common and warrants. But we should talk about that also because one of the questions that, you know, showed up on Twitter was about some of these non-redemption incentives that sponsors were starting to offer. Those have been really, so let's, let's rat the conversation up there. I think that's a good place to stop. So a lot of sponsors, we, I can't remember who the first one was, but we've seen it increasingly where they'll do, it's similar to taunting structure, right? Hey, if you own shares and you don't redeem, basically we'll give you, we've set aside a pool of shares and, you know,

for every shareholder who doesn't redeem, you'll get one. So if no one redeems, everyone gets, you know, point one extra shares. But if. half the people redeemed, then everyone gets 0.5 extra share. So it gets up and it really encourages. I've seen that structure so far. I mean, it's been limited. I don't think it's been that successful in discouraging redemptions because everybody's been looking at these things and saying, if the stock's going 10 to 6, it doesn't matter if I'm getting an extra, you know, but what do you think about them? Do you think these are clever? Do you think we'll start seeing more of them? Have you seen them work so far? We haven't really seen them work, but small sample

size. You know, there's a deal coming up for a vote. Sorry. Sorry, exactly. It's coming up for vote and they have it. Listen, the way I think about it is you're not being compensated enough if you're like an arm who's not fundamental to say like, oh, you're giving me like an extra point one, let's say point one chairs, right, a dollar of consideration. So sure, I'll stick around because you look and there's just too many of these things trading at that drop immediately to seven, six, five, four three. So I view it as a sweetener if you like the deal. So again,

And in the Cohn Robbins case where I like the deal and I like the cash flow characteristics, sure, if you're going to give me a little extra juice, like that sounds good. And by the way, in the warrants that are restrike too, so I'm going to get more value in my warrants. And that's great. And, you know, if the forecasts are close to right, you know, even if it trades down a little bit, the thing is going to compound value. And for, in my opinion, for these cash flow generating stories, a warrant is just a cheap form of leverage on your cash flow compound.

So in the case of CRHC, you know, highly profitable business at a reasonable price. So if you like it before the story, then the 6.6 million shares are allocating to non-review chairholders as a bonus. And the warrants being restruck is also a bonus. You know, but it all starts from liking the business. And then when you look at Starry, like Starry, I'm not in the weeds, but it sounds like an interesting business, good mission to bring, you know, cheap internet everywhere. But I look at it and say, okay, this business is free cash flow negative to the

tune of about $350 million over the next three years based on their forecast. And that's just not the type of stock that works in this environment, right? As we've seen with like the origin. And so what and even their pipe investors are impressive. They've got Tiger. They've got fidelity. But I look at that and just say like, you know what? I'm not quite sold on this story here.

And so offering me, you know, the million shares that they're offering to non-redeemed shareholders isn't going to change my mind or get me excited to play. But it would have if I was, you know, interested to begin with. I'll just, I'll just mention for listeners. I just did a deep dive in the cable space. And on the blog, one of the things I did was I talked about Starry because I think Starry has a really interesting model. If you look at their projections, if you look at their model, it's very scary as a cable investor, as a potential. But I think Starry runs into some issues where they don't actually own, you know, what they're doing is they're basically leveraging someone else's last mile to go to go off for Internet, someone and they've got a really novel way. But I think there's a lot of questions around that where they don't own the infrastructure. They're the only one who's trying to do this, which suggests that there's probably some, a lot of other people have some concerns with how the tech's getting structured, but it is a really interesting model. And as you said, some very smart guys are backing a pipe at a pretty interesting valuation. All right. Actual last question, then I'm going to let you go. There are a couple

of SPACs that have rights outstanding, right? So rights, very similar, kind of similar to warrants where if the deal gets done, the rights flip into a stock. The two I'm particularly thinking of are Benny, B-E-N-E, and E-S-S-S-C is the other one. I can't remember what the SPAC's name is. Are you familiar with either of those? I mean, I know Benny because I think it's a Patrick Orlando SPAC. Is that right? It is, yeah.

And ESSC, you know, seems to get a lot of the Reddit attention because it's gotten very low float. But, listen, I think rights in general are, you know, I just had the data point up on where they were, the average right was traded. I'll let you go through your rights thing in a second. So these two in particular I was going to ask because, you know, the stocks are around $10 per share and the rights, which for both of them, one cent of a right becomes a whole share. So the rights are at about 40 cents. So that implies a stock price of $4. And my question to you was going to be, are the rights forecast, similar to the warrants, are the rights forecasting the stocks going

straight down if the deal is going to prove? Or are they forecasting to, hey, there's a big chance that the SEC blocks these deals or the deals fall apart because if the if the spas can't get a deal through rights are worth zero. So how would you read into the rights price these days? I mean, can can be yes to both. Right now the median rights for a pre-announce of SPAC is two bucks, normalized for 10. So it's implying a $2 stock price. And your point is exactly right. This either means that a lot of them are going to liquidate or it means that, you know, the stocks are going to tank. And I think, you know, I think from the perspective of doing a deal, if they're only rights and no warrants, to some extent, that could be easier, right?

Because a target comes to look at it as delusion. And so, you know, I think it's hard. What I like more about warrants is you kind of get more of that upside. But, you know, on a situational basis, the rights could be interesting. And so I'll be specific. There's a SPAC called, called ROC Energy. Okay. And so these guys went out and they did their IPO, no warrants, but they did it right. And the reason they did that is they said, look, we want to buy an energy asset that pays a big dividend. And as you may or may not know, if you pay a dividend over 50 cents, it restrikes the warrant.

And we've seen a lot of SPACs with warrants have to come out and amend the warrants because of exactly that issue. So they said, well, we want to kind of get ahead of that. And so no warrant, just a right. Like, I actually think that's an interesting structure. And by the way, energy could be an interesting asset class for a SPAC right now since, you know, energy's been out of vogue for years. And all of a sudden it's, you know, it's very in vote now. So I actually think, you know, that's, and full disclosure, I own those units. Like, I actually think that one could be interesting.

But there are a lot of other ones where they're issuing rights because they have to keep giving goodies to investors. And so, you know, you look at some of these. deals that has overfunded trust plus warrants plus rights. You know, there was an interesting deal that actually showed alignment. I know we're over here, so I'm going to try to find this fast for you, but there's a SPAC with the ticker, B-L-E-U. And what they did here is they issued rights so they wouldn't have to overfund the trust, which could have just been a capital issue for the sponsor. Yep. But what the sponsor did to offset that is they temporarily forfeited some of their promote unless the stock is above, you know, whatever the number is

12, 50, 15 bucks. And so if you're an investor or the target company, you know that there's no incremental dilution here unless the stock is up 25% plus and then candidly no one cares. And so if there are creative structures like that, I think that's okay. But in a lot of the other cases, it just feels like, you know, rights are kind of the last in the line of goodies to sweeten an IPO. And so you should be careful. But, you know, if you know, If it's only rights, it's okay. If it's not only right, it's, you know, do your home. Well, Lewis, I think we covered so much on this podcast.

It was great to having you on. Congratulations to the launch. And, you know, hopefully a couple months from now, we can come do an update on origin. They'll be close to getting Plant 1 online. We can do an update on the SPAC market. And hopefully things are a little more lively than they are today. But great having you on. Congrats on the launch.

And we'll talk soon. Thanks, Andrew. Appreciate the time. Take care.