Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

New Offerings Delayed Amid Stock Turmoil

NEW YORK -- With stock prices sinking fast, cracks are starting to appear in the market for new issues of shares, sending companies scrambling for other ways to raise capital.

Several young, technology-based companies have postponed plans for initial public offerings and others are finding that demand is weak for their second or third stock offerings.

"We are advising people who are in registration and ready to launch to hold back and take it day by day," said Peter Blanton, a managing director in equity capital markets at Credit Suisse First Boston.

Amid the turmoil, some representatives of the old economy are soldiering on with initial offerings. Investment bankers Tuesday night priced first-time stock sales for two companies that existed before investors had heard of the Internet: Metropolitan Life Insurance Co. and Krispy Kreme Doughnuts.

Analysts said neither of those offerings would have much effect on the overall market for new stocks because each is anomalous in its own way. At $2.88 billion, Metropolitan Life's initial offering is an unusually large offering that is part of the insurer's conversion from a mutual owned by its policyholders to a public company.

The complicated process of demutualization reduced the chances that the sale would be delayed or canceled, analysts and investors said.

Krispy Kreme is a niche offering raising $63 million for a company with a strong brand name but no connection to the Internet, other than its web site.

Professional investors said they expected Krispy Kreme's shares to rise when they start trading but not enough to give a boost to the overall market.

"We've already seen an erosion of the IPO market," said Mark Hantho, a managing director of equity capital markets at Morgan Stanley Dean Witter & Co. But that market has held up better than the market for secondary stock offerings, which has become "very difficult," Hantho said.

Investors are still willing to take chances on first-time offerings in certain industry sectors, especially Internet infrastructure plays, he said.

But already public companies will have a hard time tapping the capital markets again unless they are within a quarter or two of turning their first profit, analysts and investors said. That leaves out most Internet retailers, a group that already is among the most vulnerable.

"If you need money because you are trying to pay for a branding strategy, then it will be hard to get financing," said David Golden, co-director of investment banking at Chase Hambrecht & Quist. As a result, companies may have to resort to other traditional forms of raising cash. Executives at investment banks say the number of calls from companies seeking debt financing in the past few days has increased fourfold.

A particular favorite among the tech set are bonds that can be converted into stock. Convertible bonds are sold to investors at a discount to the current stock price - usually 20 to 25 percent.

Because they offer investors the opportunity to switch from holding IOUs to being shareholders in fast-growing companies, thebonds carry lower interest rates of 5 to 6 percent.

So far this year, convertible bonds are being issued at a record pace - more than 65 companies sold $23 billion worth of them in the first quarter alone.

One reason is that the company does not have to pay the double-digit interest payments of the more common high-yield, or junk, financing. But investors should heed the risks in convertible bonds before stocking up on them as voraciously as they pursued the stocks of Internet companies, said James Breyer, a partner at Accel Partners, a venture capital firm in Palo Alto, California.

Some investment bankers see the deterioration in the tech-stock market as a prelude to a new wave of merger activity in which better-capitalized Internet companies will devour cash-strapped competitors.

Already it has begun and Breyer, a director of, knows this first-hand. He said as many as two dozen e-retailers are shopping themselves to traditional brick-and-mortar companies, including to, the Internet venture between Accel and Wal-Mart stores.

While the new-economy companies scramble to obtain financing, their old-economy counterparts are getting a warm reception.

Late Tuesday, Metropolitan Life's underwriters at Credit Suisse First Boston priced 202 million shares at $14.25 each, near the middle of the expected price range.

The news from Krispy Kreme's investment bankers at Deutsche Banc Alex Brown was more encouraging: They priced 3 million shares of the doughnut-seller's stock at $21 each, above the projected range of $18 to $20.

Weighing in Metropolitan Life's favor was the relatively strong recent performance of stocks of insurers and other financial companies, said James Schmidt, manager of the John Hancock Financial Industries fund.

Schmidt's co-manager, Thomas Goggins, said this week's selloff bodes well for financial stocks because it increases the chances that the Federal Reserve Board will raise interest rates only one more time to cool the economy, instead of twice or three times.

Krispy Kreme was the second company to sell its initial offering for more than expected. Tuesday, shares of Cabot Microelectronics rose more than $4 from its offering price of $20, cheering investment bankers who worried that the market for new stocks would dry up.

Having developed a cult following in New York and other cities it has moved into in the last few years, Krispy Kreme is selling a 24 percent stake to the public. Some of the proceeds will be spent refurbishing some of the 58 company-owned stores, but the company does not plan to build many more of its own. Instead, it has turned to franchising, charging store owners royalties of 4.5 percent of their sales.

Another $7 million of the proceeds will be paid to existing shareholders, some of whom are officers and directors of the company.