What happened
Shares of Danimer Scientific (DNMR 11.77%), which makes biodegradable and compostable plastics, fell out of the gate on Dec. 16, losing as much as 19% of their value in the first hour of the trading day. The big news, however, came out after the close of trading on Dec. 15, when the company announced it was looking to raise some cash.
So what
Danimer, with a roughly $850 million market cap, is a pretty small company. It came public only in late 2020 via a merger with a blank check company, so it's also relatively new to the public markets. And it is working on exciting new technology, which is costly. On top of that, it just bought another company (Novomer) to further its research and development efforts, with plans to "continue its acceleration of investments in headcount, inclusive of Novomer, to build out the operational platform and infrastructure needed to support its production capacity expansion and sales growth objectives." In other words, a lot of cash is going out the door right now for a company that bled $0.53 per share of red ink through the first nine months of 2021.
Image source: Getty Images.
Which is why Danimer just announced that it plans to sell $175 million worth of senior convertible notes, with the option for buyers to increase that sum by $26.25 million within 13 days of the initial sale. The bonds will pay semi-annually and mature on Dec. 15, 2026, unless repurchased, redeemed, or converted prior to that date. Although the final terms here haven't been settled, the big concern among investors is likely that an eventual conversion will end up diluting current shareholders. That's not at all unreasonable. However, it's also not shocking that a small company looking to grow an exciting new product would need cash to invest in its future.
Now what
Wall Street is reacting as you might expect to a company that just announced a convertible bond issue. The impact here is likely exaggerated by the company's modest size and newness to the public markets. Adding some uncertainty to the picture is that it came public via a blank check company, which can complicate things given that there are often insiders who own material amounts of stock that could also end up hitting the market at some point. For long-term investors excited by Danimer's environmentally friendly plastics, it's probably better to look at the long term than to get too caught up in one day's move. But don't ignore the news here, either, as it could become a more material issue if the company's products fail to take off as expected.
