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Detour Gold gets creative with $500-million issue Add to ...

Detour Gold Corp. was in the market with a $250-million (U.S.) bought deal this morning, which comprises half of the $500-million the company is raising.

The other half went directly to Paulson & Co Inc. (otherwise known as John Paulson’s hedge fund). But there was a unique structure for this portion: $175-million was issued in normal convertible debt, while the remaining $75-million came in the form of cash settled notes. These securities operate in the same manner as regular converts except that instead of converting to common shares, they convert to cash.

There is a key reason for that. Before the offering, Paulson & Co. Inc. owned about 15 per cent of Detour, and the company has a shareholder rights plan that forces a shareholder vote any time one holder crosses the 20 per cent threshold. Under the new issue, if Paulson got the full $250-million in regular converts, they would cross that line when the debt converts to common shares.

Detour also could not strike a deal with Paulson to only take $175-million because the buyer wanted a full $250-million. Detour, of course, found a way to make that work because a big lead order gives reason for other investors to buy into the bought deal.

Aside from the cash settled notes, all investors get the same 7-year converts, which pay 5.5 per cent each year and come with an approximately 30 per cent conversion premium.

The offering is the second time Detour has come to market for a big issue in the second half of 2010. In July the company sold $282-million of common shares.

BMO Capital markets was lead underwriter on Wednesday’s offering and co-lead, “top-left” underwriter for July's issue.


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