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A few weeks ago, I blogged about efforts to come up with a fix for the accounting issues associated with SPAC warrants identified in the joint statement from Corp Fin leadership. According to this White & Case memo, discussions between the  accounting firms active in the SPAC market and the Staff have resulted in a consensus on how to structure SPAC warrants to permit them to be classified as equity & not as liabilities for financial reporting purposes.

The memo walks through the steps necessary to achieve equity treatment for pre-IPO SPACs, and this excerpt addresses the alternatives available to post-IPO SPACs to address their outstanding warrants:

SPACs that have completed their IPOs need to consider, in connection with their initial business combinations, whether to amend their warrant agreements to implement the changes to classify their warrants as equity instruments after the consummation of the business combination.

If the post-business combination company will only have a single class of common stock, the tender offer provision described above will not preclude equity classification because it would only be triggered when there is a change in control. In that case, only the private placement warrants would need to be addressed. If the post-business combination company will have a dual class structure (e.g., where certain former owners of the target company receive super-voting stock in the business combination), then the public warrants also will need to be addressed.

There are three approaches to be considered:

– Accept liability treatment for the warrants on a going forward basis;
– Seek the approval of warrantholders to amend the warrant agreement concurrently with the solicitation of approval of the SPAC’s stockholders for the business combination; or
– Rely on the “warrant table,” if applicable, or a tender/exchange offer after the consummation of the business combination, to “redeem” or repurchase some or all of the then-outstanding SPAC warrants.

The memo says that if the parties desire to amend the warrant agreement, they will need to review that agreement’s amendment provisions in order to determine whether the holders of public warrants or private placement warrants need to approve the proposed changes.

– John Jenkins