The ATM program sees a public company announce plans to issue stock, then actually tap investors any time it sees fit, during a period of up to 24 months, by selling shares at prevailing market prices
Corporate Canada is embracing a new, low-cost approach to selling stock, borrowing from the playbook of U.S. companies that have raised more than $50-billion in the past five years.
The concept is known as an At-The-Market offering, or ATM program, and it sees a public company announce plans to issue stock, then actually tap investors any time it sees fit, during a period of up to 24 months, by selling shares at prevailing market prices. While rare in the domestic market, more than 500 U.S. companies have put ATM programs in place, and Canadian regulators and stock exchanges are starting to push the approach.
Two Canadian companies, Parkland Fuel Corp. and B2Gold Corp., broke ground in the past year launching ATM offerings. Parkland, working with Canaccord Genuity Group Inc., is selling up to $110-million of stock, while B2Gold, advised by Canaccord Genuity and HSBC Securities (Canada) Inc., is well into a $100-million (U.S.) campaign.
For Vancouver-based B2Gold, an ATM program has allowed the company to raise $46-million to date, cash used on continuing projects, such as a mine being developed in Mali with a $395-million overall budget.
The attraction of an ATM offering is lower fees. Investment banks charge companies a 2-per-cent commission to sell stock under at ATM program. A traditional bought-deal equity financing, which sees the investment bank shoulder the risk of selling shares, comes with a 4-per-cent fee and is typically done at a discount to the market price of the stock, which boosts the overall cost of the transaction.
"An At-The-Market financing is an attractive, low-cost way for companies to raise money," said Ron Sedran, managing director of equity capital markets for Canaccord Genuity in Canada. "It's particularly effective for companies in capital-intensive sectors, such as mining, energy, real estate and life sciences."
Canada's largest stock exchange recently began spreading the word on ATM programs. In April, the Toronto Stock Exchange hosted breakfast sessions in four cities – Vancouver, Calgary, Toronto and Montreal – to explain the approach to financing to both corporations and institutional investors.
Canadians are catching on to an approach that's gone from niche product to a mainstream financing tool in U.S. markets. Last year, U.S. companies announced a total of $38.4-billion in ATM programs. Mining company Freeport-McMoRan Inc. raised $3.5-billion in three ATM programs over the past two years, and Bank of America Corp. rebuilt its balance sheet with a record-setting $12.5-billion ATM offering in the wake of the financial crisis.
"The main advantage of an ATM program is its flexibility: it allows the issuer to control the timing, amount and minimum acceptable price of a sale of equity" said a recent report from law firm Blake Cassels & Graydon LLP. "The related, but countervailing, consideration is that ATM programs may be less useful to issuers seeking to raise large amounts of capital.
"Taken together, these characteristics have led to ATM programs typically being used by issuers for capital management purposes, rather than for "event driven" financings," such as takeovers, Blakes said. "Putting an ATM program in place does not preclude simultaneously pursuing a traditional marketed or bought equity deal."
Canadian regulations currently make a homegrown ATM program less flexible than what's available to companies listed on U.S. stock exchanges. In Canada, an ATM offering is capped at 10 per cent of a company's total market capitalization, and on any given day, an ATM share sale cannot amount to more than 25 per cent of the company's daily trading volume.
There are no limits on ATM programs in U.S. markets, which gives dual-listed Canadian companies an incentive to sell stock through a U.S. exchange, rather than their home market.
Domestic rules are now being reviewed as part of a larger study of capital market efficiency launched in April by the Canadian Securities Administrators, or CSA. In announcing the review, the umbrella organization of Canada's provincial and territorial market regulators said while red tape has been cut, "the CSA recognize that there is more we can do to address other potential sources of regulatory burden for reporting issuers."
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Andrew Willis