Specifics around the proposed IPO of CapitalSource Inc., a commercial finance lender and repeat ABS issuer, continue to remain hazy despite the fact the company issued an amended filing last week with the Securities and Exchange Commission. The new document gave little in the way of juicy tidbits.
Initially filing to go public on June 12, the company hasn't shed any light as to how many shares it plans to sell in its IPO, nor at what price range, in either filing. What investors do know is that CapitalSource is seeking to raise $402.5 million, a very large offering size in comparison to other new IPO filings this year. The company plans to go public on the New York Stock Exchange utilizing the "CSE" ticker. Credit Suisse First Boston is the lead underwriter, joined by Citigroup, Wachovia Securities, Goldman Sachs, Lehman Brother, JMP Securities and U.S. Bancorp Piper Jaffray.
CapitalSource provides "specialized" loans to small- and medium-sized business - $5 million to $250 million in size - focused through three lending groups: Corporate Finance, which targets businesses backed by private equity sponsors; HealthCare Finance, which offers asset-based revolving lines of credit an other secured loans to healthcare companies; and its Structured Finance group, which specializes in asset-based lending to finance and commercial real estate owners. As of June 30 of this year, the company reported 310 loans to 234 clients; aggregate outstanding principal totaled $1.7 billion while aggregate lending commitment totaled $2.6 billion.
A relatively young company, founded in 2000, CapitalSource is a rather large ABS issuer, having completed three securitizations and raising $866.9 million in debt capital to support its lending. Via its CapitalSource Commercial Loan Trust, the first asset-backed issue was a $227 million business loan deal - an asset class considered a CDO by many market participants - which priced in May 2002; a second $325 million deal priced in October of last year.
This year, a $450 million deal was issued in April. CapitalSource noted in its IPO filing that capital from these securitizations is vital to continuing its lending business, as proceeds were used to raise additional capital to pay down borrowings under its credit facilities. Consequently, should its securitizations grind to a halt - due to market upheaval, a material rating downgrade or a perceived inability of CapitalSource to service its loans, for example - the adverse impact would hit not just CapitalSource's livelihood but shake up its equity stock as well, should the IPO
For the six months ended June 30, 2003 and the year ended Dec. 31, 2002, CapitalSource earned pre-tax income of approximately $46.9 million and $41.6 million, respectively. In the first six months of 2003, CapitalSource generated 29% of that revenue from the two most junior classes of securities it retained in each of the three asset securitizations it completed. Totaling $183.9 million in principal amount, CapitalSource recorded $28.1 million in cash flow from these securities during that time period.
While amended filings spark a paltry amount of interest, CapitalSource's appetite for the equity market has raised more than a few eyebrows. It is the second loan lender, complete with securitizations tucked under its belt, to aim for a public offering this year. Market pundits may recall the dazzling story of Accredited Home Lenders (see ASR 6/30), which went public on Valentine's Day at $8 a share and was up 143% as of July 1. Accredited, a non-prime mortgage lender trading on Nasdaq under the LEND ticker, had five securitizations under its belt by the time it went public. However, Accredited - as a consumer loan lender - has a distinctly different business model from commercial lender CapitalSource. Nevertheless, when CapitalSource filed last month, investors from both sides of the fence began talking about this notable occurrence: equity capital- raising efforts by companies that banked on asset-backed lending activities. Accredited managed to raise $77.2 million via its IPO.
Proceeds from the IPO will be used to pay down outstanding borrowings under revolving credit facilities. Cash dividends will not be offered on shares of the common stock, said CapitalSource in its filing. Currently operating as a limited liability company, CapitalSource plans to become a Delaware corporation immediately before the closing of this offering.