Why American Coastal Insurance Stock Dived by 17% Today

What happened

The weekend can't come soon enough for American Coastal Insurance (NASDAQ:ACIC) stock. It took quite a beating on the exchange Thursday, closing more than 17% lower. Investor ire came from news of a new, relatively large-scale share issue. The share price's steep decline did not mirror the performance of the benchmark S&P 500 index, which landed 0.6% in positive territory that day.

So what

Late Wednesday, American Coastal announced that it plans to issue up to 8 million shares of its common stock in an at-the-market (ATM) public offering. ATM issues tend to take place piecemeal, with share sales taking place from time to time, rather than all at once.

The insurer is selling the stock through a distribution agreement with Raymond James Financial (NYSE:RJF). For its work, Raymond James will earn a commission of up to 3% of the gross proceeds derived from the issue.

In its latest regulatory filing on the flotation, American Coastal wrote that it intends to use the monies from the flotation "for general corporate purposes, including to create capacity for expanding specialty underwriting and for the potential contribution to our statutory entities for capital adequacy purposes."

As this is an ATM offering, which can be difficult to gauge due to uncertainties about the totality of the issue and its timing, the company did not provide an estimate as to how much it might earn in proceeds.

Now what

Eight million shares is a big number for American Coastal, as it currently has just over 43.4 million shares outstanding. So even if it, say, only floats 50% of the mentioned amount, the issue risks being very dilutive to existing stockholders...which explains their rather negative reaction to the news.

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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.