Equity Lines

By Dennis McCarthy – (213) 222-8260 – dennis@mbsecurities.com

Comparing ATMs and Equity LinesWelcome to the Equity Series – Raising Equity for Small Cap Public Companies

This particular video addresses another means for a company to raise equity through a registered offering in what’s known as an “equity line”.

In an “equity line”, a company with an effective shelf registration sells stock over time, somewhat like what I described in my video on “at the market” (“ATM”) or “dribble out” offerings.

In an equity line, however, a company enters into an arrangement with a single buyer to buy shares from the offering company at a price based on a predefined formula, often a discount to the market price at the time of purchase.

This buyer, however, is typically not a long-term holder of the company’s stock and intends to resell the stock into the market at some future time.

So for the offering company, there is certainty that it can sell shares under the formula but less certainty about the stock price which may suffer from the resale of shares by the equity line buyer.

In my video on ATM’s, I said that a company using an ATM should have trading volume that substantially exceeds the planned amount of equity to be sold so that the stock market can absorb the shares without disruption.

Unfortunately, the history of equity lines is that offering companies have had insufficient average trading volume and the resale of stock into the market has depressed price levels or at least capped any upside.  Equity lines have earned a reputation, therefore, as desperation or toxic financing.

I would be hard pressed to think of a situation in which an ATM would not be a better mechanism than an equity line but there may well be some.

In my blog post, I’ll attach a comparison of the characteristics of an ATM and equity line.

Please contact me to help your company to raise equity or to complete other capital market transactions.