This was a headline in Barron’s yesterday. The article points out what a lot of others, including us, have been noticing, that there are a lot of Special Purpose Acquisition Companies (“SPACs”) now trading for below the cash they have in trust. SPACs give investors the right to redeem their shares for a proportionate share of the cash in trust once they ink a deal. If they don’t find a deal, they liquidate and return cash in trust to shareholders. Buying a SPAC that is trading below cash in trust creates a yield to maturity, not unlike you would earn in a bond investment. Unlike a bond, where you know exactly when maturity is, and how much you will get (assuming it doesn’t default), SPACs can trade significantly over cash in trust if they come up with a deal that Wall Street particularly likes. A deal could also come at any time; a SPAC doesn’t have to wait until 2 years are up.

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