Dan Fisher Quoted in S&P Global on SPACs as Acquisition Vehicles for Distressed Investors

Akin Gump partner Dan Fisher, head of the firm’s integrated special situations group, has been quoted extensively in the S&P Global article “Deep Dive: Amid recovery, limitations, distressed SPACs eye acquisitions.” The article examines why special purpose acquisition companies (SPACs) are rising in popularity among distressed investors.

According to the article, a SPAC can provide distressed investors with the currency needed to buy a post-reorganized company’s equity. Although, as S&P reports, many distressed investors look to enter a capital structure when a target company’s troubles first become known and the price of its debt securities are falling, this option is not available to a SPAC.

Fisher noted that SPAC governance documents generally require that the SPAC purchase an operating business. In other words, distressed investors cannot use a SPAC’s cash to buy debt in the leveraged loan or bond markets to gain their seat at the table.

Fisher said that while a SPAC is not required to own all of the equity of a target, it is generally required to acquire at least a controlling interest in the target business. It cannot, however, get there through the debt. “Acquisition of the debt, even if the plan would be to ultimately convert to equity, would not qualify,” he said.

As Fisher explained, this does not preclude SPACs from having a role in the bankruptcy process, since a company might put itself, or a major asset or subsidiary, up for sale under Section 363 of Chapter 11 of the U.S. Bankruptcy Code, but he warned that “the SPAC’s structure, for example the requirement for shareholder approval and associated SEC timing issues, might put it at a disadvantage versus other bidders.”