LSEAW - Landsea Warrants

[Gregmal]

So this is a quick writeup as at best its timely and at worst a waste of time.

 

LFAC(spac) bought Landsea. What not to like is obvious. Full time allotment plus extension spac deal...historically this is an ominous sign.

 

Background...Landsea is a homebuilder, predominantly single family, semi upscale, and homebuilding is a typically mediocre business.

 

https://landseahomes.com

 

Post close entity has a bit over 100M in debt. Just closed on some parcels in AZ, has solid revenue backlog. Concerns would relate to material/lumber costs increasing, but par for the industry.

 

Obviously, one can find reasons to get optimistic about housing.

 

Yada, yada. Who cares about all that.

 

Trading volume on warrants has been gargantuan and typical of many spac deals post merger. Selling pressure has taken these from as high as ~$2 to 30c or so. Expiration date 1/7/2026(or around there, dont quote me). I wouldn't say free money bc post spac is still post spac IMO, even in bubble mania. But 11.50 strike on a sector with some bright prospects and .30 for 5 years is pretty wild, no?

 

Someone tell me what I'm missing.

[samwise]

Seems they lost money in the last two years. https://www.sec.gov/Archives/edgar/data/1721386/000173112221000062/e2339_99-2.htm

 

Is this usual for SPAC buys?

[Gregmal]

Yea I am not entirely focused on the biz....there is that angle to always analyze. I'm just talking about warrant pricing. For instance, TLMD is a pos and closed some time ago, shares trade at $7 and the warrants due to having 4+ year trade well over $1. FSR did a deal close nose dive identical to LSEA, warrants bottomed around $1.8. The warrant pricing a few weeks ago, ~$2 seemed within reason. Here you're looking at 30c warrants with an 11.50 strike and 5 years of time. $0.30 seems outrageously mispriced and is perhaps entirely the result of ~9M warrants trading inside of a week, or if there is something more specific I am missing. This caught my eye cuz I look at a lot of the spacs, but was hoping someone closer to this was able to confirm or deny any sort of buried in the document specific reason for this, or if indeed this is just total lopsidedness in the short term supply/demand equation. If this is a $8-9 share, the warrants should be at least $1.

[rosemontseneca]

Here’s the catch I think:

 

http://www.lfcapital.co/uploads/1/3/3/5/133548054/lf_acquisition_corp.__landsea_homes_definitive_announcement_press_release_-_8-31-20_-_final.pdf

 

“In connection with the proposed merger, LF Capital will seek an amendment to its existing public warrants, which significantly reduces potential dilution from the capital structure, such that at the closing of the merger, (1) each public warrant will entitle the holder thereof to purchase one-tenth of one share of Class A common stock instead of entitling the holder thereof to purchase one share of Class A common stock and (2) each holder of public warrants issued and outstanding immediately prior to the closing of the merger will be entitled to receive from LF Capital a one-time payment of $1.85 per public warrant as soon as reasonably practicable following the closing of the merger. The warrant amendment requires the approval of holders of at least 65% of the outstanding public warrants, and the closing of the merger is not conditioned on approval of the warrant amendment“

[Gregmal]

Good find. That makes sense then I suppose we're looking at the cash out plus current market adjusted price, which roughly gets us a ballpark of $2 and change.

 

These spacs are definitely getting more and more creative. I've seen language on the warrants that effectively allows them to be cancelled if not given instruction to exercise after the typical thresholds are crossed/met.

 

Thanks. Looks like this is a waste of time then lol. Unless you're keen on the biz, which I have no opinion on.

[oplia]

The cash-out already happened. The new warrant is equivalent to 1/10th of the old warrant (you need 10 warrants to buy one share), so one could say that the price of the 'standard' Landsea warrant is $2.8, which I would consider to be significant overvaluation with the stock below $10/share.

 

Warrants have been very interesting before the merger (see arbitrage thesis here https://www.specialsituationinvestments.com/2020/09/lf-capital-acquisition-lfacw-warrant-exchange-16-upside/), but I do not see anything attractive currectly.