RE:Without any bank bebt , convertible debentures are first in wellthereyougo wrote: line. There's no way they'll take shares. When ZAR files , debenture holders will simply sell off the assets.
Reality check: that may not be so easy, for a couple of reasons:
1. The current low price, reduces the asset valuation, of their properties. A property could be sold, but it might not get very much value, so Debenture Holders might not recoup all of the book value.
2. The assets are of poor quality, and the Government may not allow a transfer of the assets, when a property is sold. From the MD&A:
LIABILITY MANAGEMENT RATING
On June 20, 2016, the Alberta Energy Regulator ("AER") issued Bulletin 2016-16 which put in place certain interim measures for transfers of AER regulated assets including a requirement that all transferees demonstrate that they have a Liability Management Rating ("LMR") of 2.0 or higher immediately following the transfer. At November 3, 2018, Zargon's LMR was 1.21. Although there is a significant level of uncertainty around the application of Bulletin 2016-16,it could restrict Zargon from buying or selling oil and gas assets, which could negatively impact its business.
That means they have lots of wells, that require abandonment, and very little production, to offset the abandonment liabilities. This makes their properties less attractive, for a potential suitor: the purchaser would have to have a better LMR than Zargon does, and be larger in size.
Thus selling a property, isn't necessarily possible, unless it is for the right price, and the right buyer. Easier to just keep the sick horse moving along, and hope for some price recovery, rather than chop it up for meat.