Feb 28th
line has until February 28th to find a buyer
Source: See Note 1
Financial restructuring
Cline entered into an agreement with Marret (its major bondholder) for a
financial restructuring. The impact was relatively neutral as the company had
already defaulted last week on its $2.5M interest payment and the stock had
collapsed by 52% on the news (from $0.19/sh to $0.09/sh).
Main takeaway: Cline has until February 28th to find a buyer…
Essentially, if Cline fails to find a buyer by February 28th 2013, the
bondholders will eventually own 54% to 95% of the company’s equity (95% if
no shareholders participate in a $35M rights offering at $0.0205/share as
Marret will act as stand-by underwriter). Therefore absent a buyer, Marret
could end up owning 95% of the equity for total consideration of $35M (less a
commission/fee of $3.5M for the rights offering) as all the outstanding debt +
interest would have to be repaid with the proceeds.
…or shareholders will lose control
As part of the restructuring, Cline will issue $7.0M in new bonds to Marret and
the exercise price of the existing warrants will go from $1.15/share to
$0.0832/share. This dilution would lower our NAV from $1.01/sh to $0.94/sh
(assuming the warrants are exercised) and Cline now has until February 28th
to find a buyer or raise equity. If no buyers are found, a recapitalization will
take place and our NAV would go down to roughly $0.07/share with the total
number of FD shares going from 210M to 4,020M. The bondholders would end
up owning 54% to 95% of the company and the shareholders would be left
with a very small piece of the pie.
Valuation: Under Review