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Warrants: After Tarp, is there a viable market?

Treasury bank warrants sales increase volumes; Will corporations begin to follow suit?

There has been little reason for a covered warrant market to develop in the US given the large and liquid listed options market. Nor have non-covered warrants, issued directly by the companies on stocks, ever been a big consideration for investors or borrowers.

But the sale of bank warrants by the US Treasury is spurring an interest in a US warrant market, say participants. Banks that received Tarp support had to provide the government with warrants. The Treasury has been selling them back to the banks or holding auctions of the warrants since last December. Around $3.2 billion in Tarp recipient bank warrants have been issued since the beginning of March, according to Dealogic, and the Treasury has more left to sell.

Jeff Mortara, managing director in the ECM group at Deutsche Bank in New York, says he expects firms other than financials to tap the warrants market in the US. The Retiree Medical Benefits Trust for retired United Auto Workers members raised $1.8 billion from the sale of Ford Motor Company warrants at the end of March this year, for example.

"Now that we are back to a period of reasonable stability, we’re more likely to see common equity issuance, straight debt issuance or convertibles"

Dan Cummings, Bank of America Merrill Lynch

"Warrants are a good way to raise primary capital without the share dilution immediately hitting your shares.

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