Equity credit line arbitrage is a unique form of private placement arbitrage. The manager enters into a stand-by equity distribution agreement with a public company. The agreement allows the issuer to sell a given dollar value of stock to the manager over a preset term, usually at a discount based on a future pricing period. The manager hedges his position by selling stock short during the pricing period. Individual transactions under the equity credit line will be limited in size based on the liquidity of the issuer’s stock.
