Is Ackman Facing A Liquidity Crunch: CP Files Shelf With Pershing As Selling Shareholder

Is Ackman Facing A Liquidity Crunch: CP Files Shelf With Pershing As Selling Shareholder

Tyler Durden’s pictureSubmitted by Tyler Durden on 03/01/2016 17:05 -0500

It is often said that on Wall Street there are no guarantees. That is wrong: there is nothing more certain in the realm of big money than carnivorous predators surrounding and tearing apart any hedge fund that bleeds in the water by shorting its longs and forcing a squeeze of its shorts, until and past the point of max pain, which forces the fund to liquidate and hit any bid or lift any offer, traditionally at extremely preferential terms to everyone on the other side of the trade.

For the sake of simplicity, “predators” include any and all hedge funds, especially those which the target assumed it was friendly with and until recently was inviting to his or her “idea dinners.” In fact the only catalyst predators typically need is any confirmation that the prey is crippled, at which point the last dance begins. In other words, any “blood in the water” usually means the different between life and death; and in these violently fast markets, the time from life to death may be counted in milliseconds.

Which is why any time a distressed hedge fund finds itself in liquidity difficulties or faces a surge redemption requests, its first priority is to hide these as well as possible. The problem is that it still has to sell something to free up liquidity, and once it starts doing that, the prime brokers make sure it is marketwide news within minutes.

One such hedge fund, of course, is Bill Ackman’s Pershing Square, which thanks to just one stock, Valeant, has found itself in a heap of trouble, and as of a week ago was down -17.3% for 2016 after tumbling 20% in 2015; worse, after the latest rout in Valeant stock, we expect the fund to report it is down over 20% YTD when it issues its weekly update for the week ended March 1 overnight.

However, despite the massive performance rout Pershing Square has experienced, so far there had been no hints it may be impacting either the fund’s liquidity or, so far at least, redemption requests.

That may have changed today when earlier this afternoon, Pershing Square portfolio company (long 13.9 million shares) Canadian Pacific filed a $1.5 billion mixed Shelf statement which covered everything from Common to Preferred to Warrants and Units.

As a reminder, a shelf, or S-3 filing, is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering. Instead, there is a single prospectus for multiple, undefined future offerings.

In effect, it gives the seller a green light to approach the market at will.

What was curious about the CP shelf is the following disclosure:

Canadian Pacific Railway Limited (“CPRL” or the “Corporation”) may from time to time offer common shares (“Common Shares”), first preferred shares (“First Preferred Shares”), second preferred shares (“Second Preferred Shares”), subscription receipts (“Subscription Receipts”), warrants (“Warrants”) and units (“Units”) of CPRL (collectively, Common Shares, First Preferred Shares, Second Preferred Shares, Subscription Receipts, Warrants and Units are referred to herein as the “Securities”) having an aggregate offering price of up to US$1,500,000,000 or its equivalent in any other currency. Certain funds managed by Pershing Square Capital Management, L.P. (“Pershing Square”) or its affiliates or their respective permitted assignees (collectively, the “Selling Shareholder”) may also from time to time offer and sell Common Shares pursuant to this prospectus. See “Selling Shareholder”.

And this:


As at the date hereof, based on publicly available information, the Selling Shareholder beneficially owns 13,940,890 Common Shares, which is approximately 9.1% of the outstanding Common Shares. The Selling Shareholder may sell some, all or none of their Common Shares covered by this prospectus.

Pershing Square, a registered investment advisor under the United States Investment Advisors Act of 1940, is the investment advisor to each of Pershing Square, L.P. (“PS”), Pershing Square II, L.P. (“PS II”), Pershing Square International, Ltd. (“Pershing Square International”) and Pershing Square Holdings, Ltd. (“Pershing Square Holdings” and, together with PS, PS II and Pershing Square International, the “Pershing Square Funds”). PS Management GP, LLC (“PS Management”) is the sole general partner of Pershing Square. Pershing Square GP, LLC (“Pershing Square GP”), a registered investment advisor under the Investment Advisors Act of 1940, is the sole general partner of each of PS and PS II. Pershing Square has investment discretion with regards to 13,940,890 Common Shares, which Common Shares are directly owned by the Pershing Square Funds. The Common Shares were acquired during the period from September 23, 2011 to February 2, 2012. William A. Ackman is the Chief Executive Officer of Pershing Square and the managing member of each of PS Management and Pershing Square GP. Mr. Ackman is also a director of CPRL. Paul Hilal, a former Partner at Pershing Square, served as a director of CPRL from 2013 until his resignation from CPRL’s Board of Directors on January 26, 2016. Pershing Square is a Delaware limited partnership and its address is 888 Seventh Avenue – 42nd Floor New York, NY 10019.

In other words, the selling shareholder quietly tacked on to the CP Shelf is not just the company, but a major investor, in this case the second largest investor in CP after T. Rowe Price which is Bill Ackman’s Pershing Square which owns just over $1.7 billion in common stocks, or roughly enough to fill the entire shelf.

Why go this circuitous route to sell shares directly? The simplest answer is also the most disturbing for Pershing Square LPs – Ackman’s liquidity breaking point has come, and the fund is quietly starting to liquidate positions directly to the market bypassing prime brokers. Of course, if that is indeed the case, then Ackman would promptly deny any interest in using this shelf for liquidation purposes.

Not surprisingly that is precisely what he did moments ago, when as Bloomberg reported:


Then why file it?

Perhaps Ackman is telling the truth, but we wonder how much lower the stock price of VRX will have to drop before Pershing does precisely the opposite when faced with a major margin call on its option-based position, and maybe a better question – how much lower can Pershing’s P&L drop before Ackman is finally flooded with terminal redemption requests by investors who by now must have lost all their hair using Ackman as a levered bet on the survival of a company which with every passing day smells increasingly more like fraud.

In the meantime keep an eye on Pershing Square’s weekly performance updated on the following site, because while the credibility of Ackman’s word is “fluid”, numbers – especially negative ones – are always ironclad.

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