Bay Street loses millions on Silver Wheaton bought deal – by Tim Kiladze (Globe and Mail – March 19, 2015)

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The unsold shares from Silver Wheaton Corp.’s billion-dollar financing are finally sitting in the hands of investors, but getting them there required the underwriters to endure substantial losses.

Earlier this month, the company, which specializes in buying royalty streams from miners, launched an $800-million (U.S.) share offering, worth roughly $1-billion (Canadian), to help finance the acquisition of a gold stream from Vale SA. The money was raised by way of a bought deal, in which a company issues equity to a syndicate of underwriters who then re-sell the shares.

Investors have been more than willing to help fund asset purchases over the past few months by buying shares in bought deals, such as Fairfax Financial Holdings Ltd.’s $650-million offering that was tied to its $1.88-billion (U.S.) acquisition of Brit PLC. For this reason, Silver Wheaton’s underwriters hoped — perhaps justifiably — their deal would sell quickly, but it ran into trouble from the get-go.

As soon as word got out that the deal was struggling, investors backed away, and multiple sources said the deal was likely only one-third sold. To get rid of the remaining shares, the investment banks re-priced the remaining stock this week at a substantial discount to the original offer price.

When the deal first launched, the shares were sold for $20.55 (U.S.) each. The ‘clean-up’ price, as it is known in the industry, was just $18.30 per share – an 11 per cent discount.

Multiple syndicate members say they lost money on the deal, and estimates peg the losses of Scotia Capital Inc. – which served as the lead underwriter – between $5-million (Canadian) and $10-million. The investment bank could not be reached for comment.

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