Why the surge in Arctic shares?

Who new what, and when? That’s what some market participants are wondering given the huge increase in trading — and the resultant increase in price — at Arctic Glacier Income

Fund, a company which went into bankruptcy protection earlier this year and which announced a sale earlier this month.

In the past four days of this week more than 40 million units (11% of the outstanding units) changed hands. In the final four days of the previous week volume was about 900,000 units. This week the stock started at 3¢ a unit and ended at 20¢. After the markets closed Thursday Arctic Glacier revealed the purchase price for the sale of the company’s assets and the possibility that the sale price was high enough that equity investors may get a little return.

In its June 28 update on the proposed sale of substantially all of its business and assets to an affiliate of H.I.G. Capital, the company said the total purchase price would be US$434.5 million.

While the name of the buyer had been mentioned previously, the purchase price was new. Indeed, the two parties to the transaction went to great lengths to protect the price. There is no mention of it in the June 8 press release and in the asset purchase agreement, dated June 7 and filed on SEDAR on June 20, the purchase price has been blacked out in the 86-page document.

This past Thursday when Arctic Glacier reported the US$434.5-million purchase price, it said that its “existing secured lenders will be paid in full on closing and Arctic Glacier expects that the net proceeds of the sale will be sufficient to pay all of its remaining known creditors and may be sufficient to permit a distribution to its unitholders after all creditor claims have been proven and satisfied pursuant to a court-ordered claims process.”

Arctic Glacier added a caveat: “The timing and amount of any distributions to creditors and unitholders cannot be determined at this time.” So what do we know? In early June, when the sale to the Miami-based private equity buyer was announced, the company said there may be enough money to pay a distribution to its unitholders.

The company delivered the same message: There may be some cash for the unitholders, as in the past.

But why did investors pile in this week, and not pile in after June 8 when the sale was first mentioned? In the week after the initial announcement, about 2.6 million units were traded.

Over that period the shares barely moved in price.

But investors piled in ahead of Thursday’s announcement: on Tuesday 5.3 million units traded; on Wednesday 12.7 million traded; on Thursday the number rose to 14.6 million. On Friday, the first full day of trading after the announcement, volume was 20 million.

Calls were made to Arctic Glacier seeking a comment. We were told that nobody was available.