Q&A with Todd Wyche, President

Tell us why a strategic financing toolset should include ATMs?

Okay, I’ll try to stick to just a few key points: at-the-market offerings managed by an experienced provider give companies, large and small, a method of successfully raising capital in a controlled manner over an extended period of time. The critical advantages ATMs offer issuers over other fundraising vehicles are things like minimal market impact, flexibility, low cost and minimal management involvement. ATM offerings are more cost effective to execute than traditional equity offerings and they don’t require a lot of executive time — no executive road shows for example.

What does it mean specifically when you say ATMs are cost effective?

More traditional transactions have a cost of capital that can be in excess of 30% once pricing discounts, warrants and fees are factored in. PIPEs, registered direct offerings or other types of traditional follow-on offerings are expensive for growth companies in general. When you look at the discounts to market price that issuers have to offer in these traditional deals to investors, and particularly the warrants that issuers generally have to offer to entice investors, it’s very expensive to raise capital. ATMs are an order of magnitude less expensive.

And how can they have, using your terms, “minimal market impact”?

A drop in share price — sometimes as much as 10% to 15% – often occurs immediately preceding the pricing of a traditional offering. The market’s reaction to the issuance can drive up the cost of the equity capital. As the underwriter shops the deal around to build a book, institutional investors get wind of the sale. Some sell their shares or short the stock ahead of the deal. For example, if an institution already has a long position in the stock, it might sell its shares and buy at the new, lower price, reducing the cost basis of its holding. Meanwhile, hedge funds without a position in the company might sell short ahead of the deal and then buy the shares back after the deal is priced.

And with an ATM?

In the way Brinson Patrick executes ATMs, we aren’t out soliciting buyers or marketing the deal to gauge interest. We’re selling to investors who are just naturally in the market buying shares. It’s more organic.

Why do you see ATMs as being such a good tool for companies in growth industries such as life sciences?

Life sciences companies have such a high cost of capital, and ATMs are ideal for raising general working capital, funding specific projects, funding research and development and paying off debt. Instead of an episodic financing, relying on one or two traditional tools, we’re seeing life sciences companies incorporate a more strategic kind of financing strategy. The risky milestone-to-milestone financing model is common in life sciences, but the milestones don’t always happen on time or the market doesn’t perceive milestone announcements as favorably as the issuers hope. Then, companies find themselves in a situation where they’re almost out of capital or there’s a delay – they’re over a barrel and have to do a traditional financing, and that’s when capital is going to be the most expensive. CFOs and management teams are trying to raise capital incrementally and more smoothly.

They’re a historically popular tool among real estate investment trusts (REITs), is that correct?

Yes, companies in a number of industries, including REITs, have been using ATMs for more than 25 years. The benefits seem to be most widely understood by the experienced management teams in these industries. Beginning in 2008, the financial crisis caused companies and their bankers to look at alternate ways of raising capital, but even as the capital markets have improved, use of ATMs has continued to increase.

REITs aren’t taxed at the corporate level. In order to maintain this tax status they have to distribute at least 90% of their earnings to shareholders, so REITs have a constant need for capital because they’re not able to retain much of their earnings. ATMs allow REITs to raise capital as they need it and avoid unnecessary dilution suffered through traditional financings that cause issuers to raise more capital than is need at any given point in time.

Tell us about the downside of ATM financing.

If an issuer is caught off guard and needs to raise a large amount of capital in a very short period of time, an ATM may not be the best tool for them. At-the-market offerings are an important tool for issuers to have in the financing toolkit if they want to have more flexibility and be more strategic in their approach to raising capital.

You’re on a crusade to educate businesses about the value of at-the-market financing as a strategic tool. Any success?

Yes. Our firm has been a leading advocate of at-the-market offerings for over 16 years. Whether it’s been to help regulators understand how proposed rule changes might affect ATMs or being the first firm to establish ATMs in a number of issuers, Brinson Patrick’s been leading the way.

I’m going to throw some numbers out to you to illustrate the increase in the use of ATMs: U.S. companies in 20 industry segments raised $2.3 billion through a record 140 ATMs in the first quarter of 2012. The dollar amount represents a 121 percent increase in capital raised via ATMs compared to $1.1 billion in the fourth quarter of 2011 and a 6.5 percent increase from the first quarter last year. In the first quarter, companies used 140 ATMs versus 99 in the fourth quarter of 2011. The numbers speak for themselves as to the increase in companies’ usage of ATMs as part of their financial toolkits. A key takeaway is that the diversification of financing strategies is directing more CFOs to realize the significant benefits of ATMs.

But you do more than at-the-marketing financing now, is that right? What’s on the horizon for Brinson Patrick?

We want to keep getting the word out about our DOCS® ATM financing facility, and ATMs as an option, especially to REITs and life sciences companies, but to others as well. We see a real use in the energy sector for example. And while we point to our deep expertise in real estate and life sciences, we’ve raised capital for a whole host of industries.

We’re also very excited to be launching our equity research department, ably spearheaded by Michael Higgins and Vernon Bernardino. We think that our deep expertise in the life sciences sector allows us to provide market-moving insights that others might miss. Michael and Vernon’s fundamental research and thorough, independent analysis have the potential to really impact the market.

Thanks for your time.

Thank you, I enjoyed being able to share my passion for ATMs; as you can imagine, it’s a pretty specialized expertise that I have.

Todd Wyche, President

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