Catalyst Paper Corp.
(TSE: CTL) is a producer of specialty printing papers and newsprint in
North America, including lightweight coated, uncoated mechanical papers
and directory paper. The company recently filed a short-term prospectus
in their F-10/A filing
with the SEC related to its previously announced rights offering for
gross proceeds of C$125.3 million. Under the proposed offering, each
shareholder would receive one right per common share that they hold
that would essentially give them an option with an exercise price of
$0.75 per share. As with many rights offerings, this may be a situation
worth watching closely!
Rights offerings are interesting since they can often result in the
ability to essentially purchase “call options” for pennies on the
dollar. Existing shareholders should always exercise or sell their
rights, since their existing holdings will be diluted as a result of
the offering. However, there are many investors who do not pay
attention and rights offering often have extra securities available
that weren’t exercised by shareholders. These extra shares are often
made available to existing shareholders to purchase, which obviously
represents a great opportunity to obtain the cheap “call option” on the
stock.
The second half of the opportunity worth watching is the secondary
market for these rights, which will trade on the TSX alongside the
normal stock. Many shareholders will take the rights but not exercise
them because it requires that they put additional capital into the
company. As a result, they sell these rights on the secondary market.
This increased selling can put downside pressure on the market price
for the rights given the fact that there will likely be limited demand
all at once. And this can create an attractive buying opportunity for
enterprising investors! Combined, this rights offering is a situation
that is definitely worth watching!
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