There are a number of advantages & disadvantages associated with an ATM Program. These are variable in terms of the needs of the issuer. Also, in terms of the question that is an ATM program right for you? The rise of the ATM program in Canada is because they serve as a very flexible and cost-effective method for the sake of raising equity. They can also provide a potential source of new capital in a market. Hence, where the conventional financing are not so feasible. The ATM programs can also be viewed as a complimentary financing option to an issuer’s overall capital raising initiatives.
For the sake of establishing an ATM program in Canada an issuer must qualify as a base shelf prospectus with the Canadian securities regulators.
The following are the advantages associated with the ATM Programs
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ADVANTAGES OF ATM PROGRAMS:
The advantages associated with the ATM Programs are linked up with the issuer who finds an ATM program to be more attractive due to many reasons. These includes the flexibility aspects, costs and expenses & complimentary financing. Also, includes Discount and Dilution and management of time & attention. All these factors and advantages are discussed in detail below;
Costs & Expenses of an ATM Program:
A huge advantage with the ATM programs is that the dealer fees, commissions and the expenses associated with the ATM programs are generally significantly on a lower side. This is when compared to the traditional underwritten offerings.
Managing Time & Marketing:
An ATM program has lesser dependencies with time. Importantly, as it doesn’t require a roadshow or meetings with the investors. Also, it doesn’t require any traditional marketing efforts.
Flexibility:
As part of the flexibility measures the issuer controls the timings. As well as the amount and minimum acceptable price of every offering under the ATM program. The flexibility allows the issuers to move quickly to access capital. This is in response to the favourable market conditions.
DISADVANTAGES OF AN ATM PROGRAM:
Some of the major disadvantages associated with the ATM programs includes monthly reporting & capital limitations. Also includes, liquidity requirements, and less effective for large discrete rates.
Monthly Reporting:
Under the monthly reporting obligation and under the current ATM rules, the issuers are required to file monthly reports. These are reports in association with securities regulators that are disclosing the details of all the distributions that are made under the ATM program.
Requirements for Liquidity:
Under an ATM program the speed of raising capital is highly dependent on how liquid a particular stock is. The higher the stock liquidity, the faster is the program able to raise finances & capital needed. The liquidity factor is also required for the sake of avoiding the impact to the market price. This market price is one key factor and is the price of an issuer’s share during the term of the program.
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Capital Limitations:
A huge disadvantage with the ATM program is the capital limitations. The maximum amount that an issuer can raise under an ATM program is 10% of an issuer’s market capitalisation, i.e. in simple words a 10% cap. Another disadvantage is a huge 25% daily sales cap. Both of them are capital limitations and add up to the disadvantages associated with the ATM programs.