“The Novatech IPO will be for 4 billion shares of stock at 20 each, with a 25% reverse greenshoe. They will get 18 a share from the underwriters (this is a larger than average fee due to the mild perceived overvaluation of the stock). ZO and CC both refused to underwrite, and the CC arranged a consortium of A class money managers to underwrite as a syndicate, since there was no entity large enough to do it that both wanted to and that Novatech would accept. Total value of the company is theoretically 400B (very likely an overvaluation). With liabilities listed at only 200 billion, that makes the debt to equity ratio of look very good.
The IPO is for 80 Billion, with a 20 billion reverse greenshoe, yes that is a large greenshoe. They get to keep 72 billion of that if all goes well, and if prices go up up up it also means existing owners increase their personal wealth considerably, debt to equity looks better etc.. If things go badly though and the full greenshoe is excercised they are down to 52 billion cash. Yes they get that stock back, but if the price is low and they try to resell it it will just drive the price even lower.
So if the price closes at 15, they get a market valuation of 300B, they would need to sink all 50 bill into debt settling to keep the 1 to 2 dTe. Given shrinking revenues and a tapped credit market, where Novatech is paying rather high interest rates for the size of their company, it will be vital, as their only strong indicator, to keep dTe at near optimum levels. I am not sure how much cash they ‘need’, but if they close at 18 or better they will be very happy, below 15 might well cause them to liquidate, though such would be nearly unthinkable in a natural market.
Of course, the modern market is far from natural. . ." The Man with the Plan breaks into a smile as he says that last part.