The Rise of Registered Direct Offering Financings
In today’s capital markets; this old but new (usage) capital-raising rage has many small-cap healthcare companies filling their coffers after finding that
public equity (PIPE) offerings are limiting due to their “current” stock price circumstance.
Registered Direct securities offerings (RDOs) raise capital from investors groups. The issue has been avoiding the depreciating pricing that usually accompanies a PIPE offering provideing investors with registered stock that is immediately tradable and liquid.
PIPEs tend to have sales and timing restrictions. This RDO process uses a single-purpose registration statement if a company does not have a shelf registration or if the company already has a shelf registration statement on file with the SEC. Since RDOs are targeted to institutional investors; they are less likely to be subject to SEC review,
- An RDO involves a better timing or distribution process as a company’s stock is usually “shorted” by hedge investors upon filing of PIPE registration statements. The SEC has also relaxed eligibility requirements for issuers to NOT sell more than 33% (one-third) of its public float over any period of 12 calendar months. Since there is no illiquidity risk being borne by investors; RDOs usually price at a lower discount-to-market than PIPEs,
- RDOs are most usually common stock, issuance although issuers may sell other types of securities, including convertible notes or warrants or combinations with each other,
- The RDO is a “hybrid” transaction that fits the “current” market conditions by cash starved companies providing a timely, confidential and efficient financing alternative. However, an RDO is “STILL” a “public offering” under the securities laws, which makes it possible to allocate shares to retail investors with immediate liquidity that trade on a “when issued” basis,
- A short sample of companies utilizing RDOs: GNBT,VRUS, CVM, CYTK, INO, NBY, OGXI, CYCC, BPAC, RNN, OXGN, GTF, GNVC, EMIS, CTI, BPAX, PTN , HYTM, TSX:CJB and more.
The Bottom Line: Technically speaking, “A Registered Direct offering is a negotiated sale by an issuer to one or more investors of securities that have been registered pursuant to an effective shelf registration statement on Form S-3 under Rule 415 of the Securities Act of 1933, as amended. Rule 415 permits an issuer to register a specific dollar or share amount of securities without specifying the amount of any particular class or type of security or the timing or method of the offering. (Pepper Hamilton, LLP) The issuer may then sell any or all of the registered securities directly to investors at a later date or dates of its choosing. Unlike a typical firm commitment underwritten offering, a Registered Direct offering is structured as a “best efforts” offering. Accordingly, it involves a “placement agent” as opposed to an “underwriter” who places the securities directly with investors, rather than directly purchasing the securities itself and then reselling them to investors. However, similar to an underwritten offering, the issuer in a Registered Direct offering sells registered securities that generally have no restrictions on resale. ”