Why Pagaya Technologies Stock Tumbled This Week

what happened

Payaya Technologies (PGY -5.07%) didn’t make its investors happy this week. On the announcement of the Israel-based fintech’s latest piece of financial engineering, they sold the stock off by nearly 26% over the five trading days, according to data compiled by S&P Global Market Intelligence.

So what

In a regulatory document filed on Thursday, Pagaya said that a group of stockholders would be selling class A shares of the company. This sale involves up to nearly 677 million shares. Additionally, the company said it was floating up to 46.1 million plus new class A shares to cover warrants that were being sold in public and private placements.

The company is stressed that it will receive no monies from the stockholder sale. It wrote in its filing that lock-up agreements had expired, or will expire in mid-December, with “certain of our shareholders” it did not identify. Pagaya went public in June via a merger with its special-purpose acquisition company (SPAC).

As for the warrants, they have drastically different prices depending on the nature of their sales. In the public placement, all will cost $11.50 per share, but they will be offered at varied prices in the private placements.

Pagaya is in a position to reap funds of up to roughly $169.7 million from the warrant issues. The fintech said it would utilize these proceeds for general corporate purposes. These might include acquisitions and the paying down of debt, it added.

Now what

Almost 677 million shares represent quite a potential flood on the market, considering that Pagaya’s current outstanding share count is slightly above 505 million. No investors like to share dilution, so the market’s unhappy, knee-jerk reaction to the news is understandable.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.