Happy Sunday Folks,

Hope you enjoyed the extra hour of sleep this morning! Besides that one additional hour of sleep, everything else sucks about Daylight Savings Time change, especially the dark and gloomy evenings at four o’clock. Not looking forward to it, but think I’ll survive! I do hear though that there is no Daylight savings crap in the Metaverse. That’s compelling!

Not quite in the metaverse yet, but I did spend time in the MAID-verse this past week. What an incredible show! Margaret Qualley could not have done a better job playing the character of Alex. I’ve been seriously fan-girling over her since. And did you guys know that Andie Macdowall, who plays her reel life ‘undiagnosed bipolar’ mother is also her real life mother?! If you haven’t watched it, then stop reading this right now and go watch it instead!!

Detouring to SPACverse for a minute, it was another busy week on the SPAC issuance side. We have seen 22 SPAC IPOs in the first week of November for $4.5B. That surpassed last week’s issuance of 15 IPOs for $2.5B. 17 out of the 22 were first time Sponsors and 5 were repeat - Concord III, Juniper II, Lionheart II, Trine II and New Providence II.

As noted in the table above, it is the season of wider terms (and waists…soon). Average warrant coverage is 1/2 or more. $DHAC, $LIBY and $TGVC offered a full warrant. The average SPAC Trust is 102% overfunded and average duration has decreased from 24 months to 16 months. The stats hold for the quarter as well. So far in Q4, we’ve seen 78 SPAC IPOs and 88% have overfunded trusts and 94% with 1/2 warrant coverage or more versus 51% and 25% respectively, for all of Q3 (which saw 88 SPAC IPOs).

I want to quickly touch on the overfunded trust piece — 102% overfunded trust implies a guaranteed 2% return. And add another 1/2 warrant on top of that, it translates into another ~5% return. So that is almost 7% expected return with downside capped at NAV. And now let’s compare that to the 10yr treasury which is yielding 1.4% and a 2yr T-bill which returns 0.40%. But you already knew it’s a no-brainer! Every money market fund should be running a SPAC strategy, and wallstreetbets should pool all the retail money and set up a money market fund to run this strategy on scale.

Speaking specifically of one name, I am interested in the $LGST SPAC from last week. The Semper Paratus Acquisition Corp. ($LGST) is searching for a target in the Transportation, Logistics and Supply Chain and the Sponsors include Richard Peretz, who is the former CFO of UPS and Ben Baldarza, former CEO of Spirit Airlines, and Director of Jet Blue. Given how much the sector has been bid up in the private markets recently, a lot of unicorns are being minted in that space. And they will want to go public. Soon!

The average SPAC on deal announcement is valued at $1.4B and so if you’re already valued at a ~1B in the private markets, then why not take the SPAC route and go public instead of doing another private round. Also, what the ongoing supply chain issues have revealed is that the sector has been so deeply starved of innovation that this is just the beginning. These macro tailwinds will continue to support the high rates of capital investment into this sector in the next few years. This is a perfect crossover play in my opinion, where a sector attracted private market attention; exogenous events like Covid caused supply chain and shipping shortages and further exacerbated the problem, but also put it in front of both the private and public markets. And as the companies in this sector solve for that, they stand to be rewarded by both the private and public markets. (Also, here is a good read by a veteran truck driver explaining why these issues aren’t going away any time soon.)

The $LGST SPAC has 102% in trust, offers half a warrant and they reduced the duration to 15 months (with no extension). Perhaps sometimes having a focused thesis and an experienced board is a good thing…i.e. you know exactly who your targets are…?! And I literally just found out…Semper Paratus, which is the SPAC’s name, is latin for “Always Ready”. Hmmm… Tell me you are close to finding a SPAC target without telling me you are close to finding a SPAC target.

On that note, LFG!! Have a great week ahead folks!

-Nikita

PS. This is not trading advice. Please do your own due diligence before buying or selling any securities!

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