Last week, Cash gave the raspberry to two IPOs (going so far as to highlight one as a potential short). Both names stunk up the joint, just as he expected. What came as more of a surprise, though, was a sudden flood of additional new offerings hitting the market.

This week Cash explains why new offerings can suddenly pop up out of nowhere; how he’s still making money hand over fist on the trading side; and, last but not least, he gives the scoop on an upcoming name in the red-hot shipping industry. Enjoy…

JL: So last week, you were sweating over the need to “take one for the team.” You pointed out two upcoming names, American Capital and Verso Paper, strongly hinting that both would be duds and that the second could be a good short for savvy readers. How did things turn out?

CASH: Well, both were indeed duds — just as I expected. Verso Paper (VRS) priced at $12 on Thursday morning. That was below the published range for the expected price.

JL: And I’m assuming the lower price didn’t excite anybody or inspire any value thoughts.

CASH: Oh, heck no. The lower price wasn’t indication of a better deal for investors… it was simply clear sign that the underwriters couldn’t find enough buyers for the deal, and had to price it deep in the hole just to get it done. The result was a smaller group of less-than-pleased buyers — me included — with a chunk of weak stock on their hands. The only thing to really do was sell. That’s why the stock immediately traded down two bucks, or nearly 15% of the share price. That’s no small loss.

JL: Ouch, no kidding. I’d imagine you’ll need multiple good deals to overcome that setback.

CASH: Actually, it should be easy to overcome. See, I took a portion of stock, but I did so grudgingly (if you’ll recall) and kept my allocation on the small side. I made sure my guys knew that this purchase was a personal favor, and that longer term, I expect the business relationship to work out much differently. It’s good, in a sense, because now I have “credit in the bank,” in a good will sense, when it comes to leveraging the next few deals coming out.

JL: Gotcha. And as for the American Capital Strategy (AGNC) deal, that one did just what you said it would, too. I saw the stock was priced at $20 and immediately went to a discount.

CASH: Yep. It doesn’t take a crystal ball. When you’ve been in this business day in and day out for nearly a decade, as I have, some things are just easy to see. Any IPO trader worth his salt should�ve been able to spot that outcome a mile away.

JL: So with two “cost of doing business” trades on the books, does that cut into your profits for the year? Or rather, how big was the cut? A nasty gash, or just a little nick?

CASH: Actually, there were a few other unexpected events that came up last week. Those events in the “other” category had an outsized impact on the ‘ol P&L sheet.

JL: Uh-oh. More pain?

CASH: Not hardly! Just the opposite, in fact. Surprisingly enough, there were no fewer than a dozen additional deals that came to market last week. Enough of ‘em were profitable for yours truly to push the equity curve to a brand-new high!

JL: Sounds like a pretty sweet week. You made your i-banker buddies happy by taking on some weak deals, enabling you to bank good will credits for future deals, and yet the market was strong enough for you to power past the small losses and make your investors happy, too.

CASH: Yep. Better than a poke in the eye with a burned stick, as you always say.

JL: Ha ha, true. I picked up that saying from a grizzled old stockbroker — a guy I worked for two summers back in college days. But anyhow, where did these dozen deals come from? Weren’t there only four on the calendar when we last talked?

CASH: Indeed, you counted right. There were four last time we chatted. But when we get into a market that’s been dormant and tough for an extended period of time — like we saw from September of last year through March — it creates an extra flurry of activity when conditions change. When the window opens, deals can pop up like mushrooms overnight. In fact, there’s an industry term for this kind of thing: “rapid overnight offering.”

JL: Sounds like a FedEx or UPS commercial. Or maybe some kind of clandestine military term… swift movements in the dead of night, that kind of thing.

CASH: Heh. In some ways there really is a bit of cloak-and-dagger to it. Normally you’d think a new offering benefits from press exposure — the more press the better. But with some of these more rapid-fire deals and secondary offering deals, the opposite is true. If there’s too much press beforehand, existing shareholders will sell in the face of added stock coming to market. The deals dilute their ownership in many cases, which no shareholder likes. And so, unless you have a relationship with the underwriters (as I do), you might not get the news until it’s all over.

JL: The offering and the damage done.

CASH: What?

JL: Sorry — obscure Neil Young reference. Couldn’t resist. Probably should’ve. Anyway, so existing shareholders don’t even get a say as to whether the transaction happens? Aren’t they the technical owners of the company? Why wouldn’t there be some kind of announcement or proxy vote?

CASH: The firm’s board of directors typically makes the decision. It’s perfectly legal under the docs that outline corporate governance.

JL: Nice. So a public company can dilute its shareholders pretty much at whim… this sounds like an important area for investors to be more aware of.

CASH: No kidding. I’m actually surprised how few investors pay heed to the “syndicate calendar.” There is a ton of important supply/demand information there that most folks miss.