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(Bloomberg) – Investors are reassessing CI Financial Corp.’s sale of part of its U.S. wealth management business to investors including Bain Capital and Abu Dhabi Investment Authority.
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CI shares fell 17 percent to close at C$12.76 in Toronto on Friday, reversing nearly all of the previous day’s gains. The stock traded as high as C$18.69 on Thursday as the market reacted enthusiastically to news of the deal.
Toronto-based CI said before Thursday’s market open that it will secure $1 billion for a 20 percent stake in its U.S. wealth unit from an investment group that also includes Ares Management Corp., Flexpoint Ford LLC and Wisconsin state.
However, the deal was structured using convertible preferred shares, in which Bain received a guaranteed return – meaning it may not be as attractive to CI as it first appears.
CI’s plan is to take public the business, which has dozens of offices across the U.S. and provides investment and financial advice to wealthy individuals. Barclays analysts led by John Aiken said in a note that CI would have no obligation to provide additional compensation to Bain Capital and other investors if the IPO proceeds at a valuation of $10 billion within the next three years.
“However, in the absence of a liquidity event or a liquidity event at a lower valuation, CI would have substantially higher obligations to preferred stockholders than their original investment,” Aiken wrote.
“The longer CI waits for an IPO or a liquidity event for preferred stock investors, the more expensive this tool becomes,” he said. “We believe some investors will choose to treat this instrument as debt.”
The asset manager plans to use the $1 billion to repay bonds and loans, reducing its net leverage ratio from 4 times to 2.7 times. A spokesman for CI did not immediately respond to a request for comment.
—With the assistance of Esteban Duarte.
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