Louis Camhi on the opportunities in the SPAC market

Episode Summary

Executive Summary: The episode centers on Lewis Cami’s bullish but selective view of SPACs amid deep market pessimism, plus an update on Origin Materials. He argues that high-quality sponsors, favorable terms, and post-deal execution create opportunity in both pre-deal SPACs and some D-SPACs, while weak structures and crypto-related deals face heavy redemption and SEC friction.

Main Topics: Origin Materials update (Priority: 5/5): Cami says Origin has executed ahead of schedule, expanded its backlog, and reduced financing risk for Origin 2 via tax-exempt municipal bonds, though the stock remains flat because the market dislikes early-stage, pre-revenue names. Pre-deal SPACs as asymmetric optionality (Priority: 5/5): He argues pre-announcement SPACs now trade like fixed-income-plus instruments: trust value offers downside protection, while warrants/announcement upside can still produce strong returns if a sponsor lands a quality deal. Role of sponsor quality, underwriters, and terms (Priority: 4/5): Cami repeatedly stresses that the best SPAC opportunities come from experienced sponsors with capital access, deal flow, and credibility; he favors names like HIG, One Equity, KKR/Aries-type sponsors, and larger-bank underwritten vehicles. Redemptions and D-SPAC outcomes (Priority: 4/5): The discussion covers extreme redemption rates and the market’s tendency to redeem into trust when post-merger trading looks weak; he notes that some D-SPACs can still outperform if the business is real and the float becomes tiny. Warrants, rights, and arbitrage mechanics (Priority: 4/5): The hosts discuss how warrant pricing often signals downside in the common once warrants become exercisable, as well as how rights can imply either liquidation risk or post-merger pressure depending on structure and dilution. Crypto-linked SPACs and SEC delays (Priority: 3/5): CND/Circle, FTCV/eToro, and FPAC/Bullish are used as examples of SPACs where crypto exposure appears to slow SEC approval and force re-strikes, create higher redemption risk, and complicate PIPE financing. Non-redemption incentives and creative structures (Priority: 3/5): Cami is skeptical that giveaways alone stop redemptions unless investors already like the deal, but he sees value in structures that align sponsors, such as fee/ promote forfeitures or special terms for long-term holders.

Key Arguments: Origin is executing better than many public SPAC companies despite a weak market backdrop, and its financing risk for Origin 2 is largely de-risked by municipal bond access. The market is currently pricing many pre-deal SPACs below trust, creating a cash-yield plus optionality profile rather than a pure growth trade. Sponsor quality matters more than chasing the cheapest warrant; experienced, well-capitalized sponsors are more likely to get a deal done and create optionality. Extreme redemptions often indicate the market does not believe in the merged company; in many cases, the common can still fall once warrants register and the float normalizes. Crypto-related SPACs face extra SEC scrutiny, which slows timelines and often weakens deal economics by forcing higher redemptions and reworked PIPEs. Non-redemption incentives work best when the underlying deal is already attractive; they are unlikely to rescue a weak business model or expensive valuation. Rights and warrants can be useful signals: cheap warrants/rights may imply either liquidation risk or substantial post-merger downside once overhangs clear.

Data Points: Origin backlog / pipeline: $5.6 billion - Updated backlog/pipeline level for Origin since the prior episode, up from the earlier cited level. Origin prior backlog / pipeline: $3.5 billion - Level cited at the time of the previous discussion. Municipal bond allocation: $400 million - Louisiana allocation that helps finance Origin 2 with tax-exempt bonds. Origin 2 financing cost: Entire cost financed with tax-exempt bonds - Cami says this effectively removes financing risk for Origin 2. Origin prior redemption rate: 60% - Redemptions at Origin’s SPAC deal close; described as alarming then, but mild by current standards. Average SPAC redemption rate in February: 88% - Illustrates how severe redemption behavior has become across the SPAC market. SVFA share price: $9.78 - Example of a pre-deal SPAC trading below trust as part of the opportunity set. SPAC yield cited: 2.8% - Approximate annualized yield on a pre-deal SPAC positioned near trust value. SHUA trust value: $10.25 - New SPAC example with elevated trust value relative to older vintages. SHUA time to deal: 15 months - Illustrates the tighter time frame and terms of newer SPAC IPOs. Pershing Square Tontine discount: ~1% below trust - Cami’s example of a high-quality sponsor vehicle with low downside and upside optionality. System1 redemption rate: 99% - Used to show how tiny floats can produce volatile post-merger trading. System1 warrant price: $1.37 - Used to imply common stock downside once warrants become exercisable. DWAC common price: ~$95 to ~$100 - Used as an example of a post-announcement SPAC with massive upside after being near trust pre-deal. DWAC warrant / exercise context: Warrants around much lower implied value than common - Illustrates a large warrant/common spread and why that can point to later common weakness. Warrant short borrow cost: 117% - Cited as a reason the warrant-common arb in DWAC is not easily actionable. Median rights price: $2 normalized for $10 trust - Used to argue rights imply either liquidation risk or significant downside after deal completion. ROC Energy structure: No warrants; rights instead - Example of a SPAC using rights to avoid warrant issues tied to dividend policies. B-L-E-U promote alignment: Sponsor forfeits promote unless stock is above ~$12.50-$15 - Example of sponsor alignment to offset dilution concerns. Non-redemption bonus shares: 6.6 million shares - Mentioned in the CRHC example of incentives for shareholders who do not redeem. Starry projected cash burn: ~$350 million over 3 years - Used to argue that some D-SPACs are not suited for the current market.

Pivotal Quotes: "SPACs are probably the most hated asset class right now, I just still think there's a lot of opportunity and a lot to be done." — Lewis Cami: Cami frames his contrarian thesis on the SPAC market at the start of the discussion. "Now you're actually getting paid optionality." — Lewis Cami: He explains why buying pre-deal SPACs near trust can be attractive versus holding cash or treasuries. "The warrants don't lie." — Lewis Cami: He uses warrant pricing as a signal for where the market expects the common stock to go after a merger closes.

Implications: Listeners should view SPACs less as a single trade and more as a spectrum: sponsor quality, structure, and post-deal fundamentals matter most. In a weak market, capital preservation plus upside optionality can still be compelling, but crypto and low-quality deals remain high risk.