Virgin Galactic Holdings (NYSE: SPCE) provides space travel to commercial passengers. Virgin Galactic went public on October 28th by merging with Social Capital Hedosophia Holdings (NYSE: IPOA), a Special Purpose Acquisition Company (SPAC). The resulting market capitalization is $2B. SPACs are blank-check companies which are listed to acquire private business and take them public via merger. SPACs usually list at $10 when going public. IPOA listed in 2017 at $10 with Credit Suisse as Lead Manager. The $10 per share is placed into an escrow account.
After an acquisition target has been announced, shareholders can vote for or against the merger. Holders can also elect to “cash out” at $10/share from the escrow account. So SPACs trade around the $10 level because a price much lower than $10 may provide an arbitrage opportunity to buy lower and elect to receive a $10 cash distribution. With price stability, SPACs are not widely shorted. Another factor is short holder liability. In the securities lending market, the lender is entitled to all distributions and corporate actions of the on-loan stock. Therefore, short holders can be held liable for those distributions when SPACs undergo corporate actions and incur a cost, especially during periods of volatility.
Since the CUSIP change on October 28th, we’ve seen an uptick in Short Interest, to about 4% of the float. The borrow fee is at 5% and street-wide Utilization is in the 60s. We had only one request to borrow today, which came from a non-prime broker counterparty.
Disclosure: Interactive Brokers
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