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PIPE Deal Shines Up Sun

But if anything, the inquiry may have invigorated the market by driving out some of the bad actors and forcing the Wall Street firms that arrange PIPE deals to clean up their practices.

The list of most active PIPE investors continues to include familiar players such as Iroquois Capital, Cornell Capital, NIR Group and LH Financial -- outfits that invest exclusively in PIPEs of small-cap companies.

But the list of frequent PIPE players, according to Placement Tracker, also includes some big Wall Street names -- most notably UBS (UBS) and Lehman Brothers (LEH).

To some degree, the explosion in PIPE deals isn't surprising, given the willingness of Wall Street to lend money to companies. Last year was a banner year for the domestic IPO market and Wall Street firms sold a record amount of corporate bonds. The easy borrowing led to a frenzy of corporate mergers, including a record number of leveraged buyouts by KKR and its private equity peers.

For a big company, a PIPE deal is an attractive way to raise money, especially when dealing with a handful of deep-pocketed investors: The negotiations tend to be quicker, and they all take place behind the scenes. PIPE deals also have been used as way to fund buyouts and partial buyouts.

Indeed, the biggest single PIPE deal last year was a $2.4 billion financing transaction involving Sovereign Bancorp (SOV). The Philadelphia-based lender structured its controversial sale of a 20% equity stake to Spain's Grupo Santander (STD) as a PIPE.

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