RE:RE:RE:RE:Seeking Alpha Article - Canexusocean112 wrote: I missed this post (ignore my last post). My comments:
"The senior lenders will not let CUS pay off subordinated debentures maturing by year end"...."when a company is over-leveraged like this"......
Technically speaking, they are over levered if they are in violation of thier debt covenants. If they are not - then yes - debt to cashflow remains high - and lenders would want to see a path forward how CUS would pay down the debt over time.
Dumping Chlor Alkali at 6x forward EBITDA is not a rational decision when TD has confirmed in it sum of the parts valuation - that retaining Chlor Alkali would drive higher shareholder value than dumping it for $150M. (ie. PT of $1.64 by keeping Chlor Alkali and EBITDA contribution than $1.38 with sale at $150M).
Recall, they got a reprieve to 5x leverage by Q2, then down to 4.5 and eventually - long term - down to 3.5. I question if senior lenders would have given breathing room to CUS if they didn't think they would not be able to pay down the senior debt over time or have a plan to delever the balance sheet? They were likely pleased by Doug's decision to slash the dividend to virtually nothing - giving assurance to lenders that a viable path forward to pay down debt is a top priority. NATO was sold for nothing because it likely wasn't going to generate nothing in the future. This isn't the case with Chlor Alkali - it has signficiant potential given normalized EBITDA in the $25M to $30M range, already having generated $8M in Q1 (so target for 2015 in the $22M to $24M range).
I think i've posted before that debt covenants do not include convertible debt. Taking convertables out of the equation, post NATO - thier Senior Debt to EBITDA is 3.2 or so - which is manageable. They would have plenty of borrowing capacity, with free cash flow in 2016 and beyond - to pay down senior debt. Moreover, if they wait to sell Chlor Alkali when the oil situation improves (say 2016) - banks know CUS can get a better valuation as oil recovers. All the banks care about is a) do not violate debt covenant - and b) show me the plan to pay down debt with cash flow over time. Both of these are acheiveable should CUS decide not to sell chlor alkali.
The Scotia report confirms CUS will use NATO proceeds to pay the convertable (I presume if there was any issue with this - they would be the first to state lenders will disallow this). So i'm not understanding, in the end - where lenders fit into the equation of whether or not to use NATO proceeds to pay off convertible....it's an opinion but not backed up by the brokerages....
(From Scotia).....
In our view, Canexus liquidity concerns are off the table given that the $75 million expected to be received from this sale should cover the $60M in convertible debentures maturing in December 2015. . The sale process of Canexus' Chlor-alkali plant in North Vancouver remains on track, with the company hoping to make an announcement on this by the end of Q2/ 15. However, in our view, this announcement strengthens Canexus' position at the negotiating table given that: (1) the $60M convertible debt maturing this year is covered; (2) Canexus has no other maturities until 2018; (3) and based on our estimates, the company should be within its bank line covenants in 2015 and 2016
From RBC:
The transaction will have an economic effective date of June 30, 2015 and is expected to
close on August 31, 2015, with the proceeds to be used for debt reduction
Considering the near term obligation is payout of convertables - I presume that is what RBC is alluding to (not senior debt).
Anyway - everyone is definately entitled to thier opinions - but I would argue the consensus is not for more downside. From the reports I have - consensus is upside from here:
Targets:
TD - $1.50 (using a $150 valuation for Chlor Alkali which I suspect Doug won't sell for)
Scotia - $2.40 (assumes Doug holds out for high valuation)
CIBC - $2.50 (they didn't update post NATO sale but from previous report - did a stub valuation - if NATO sold for between $60 to $80 and Chlor Alkali sells for $280M - target is $2.50
RBC - $2.00 target
Lastly - this is all muted to those who bought in at the $4 - $5 range. This will be a bitter pill to swallow for a while. I'm trying to evaluate whether to hold on or sell at this point. Based on the article on Seeking Alpha - and brokerages - I've waited this long - I can't possibly see any reason to sell now - might as well wait this out to anywhere from $2 to $2.50 before I write off my losses.
If you're right - and this goes down to $1.00 - oh well - whats another few thousand....
Ocean; I agree that CUS.DB.A will be redeemed for cash as per the indenture. As long as Canexus stays within the covenants the lenders can’t prevent that.
Debenture holders get pretty nervous if they think that there is a problem. CUS.DB.A is trading as if there is no problem.
I thought that the SA article was very good for the most part. That said in my opinion the likelihood of N. Van. being sold for anything close to $280m anytime soon is somewhere between slim and none.
I wasn’t able to blow up the spreadsheet to see if the SA author has a scenario for keeping N. Van.
The TD report did demonstrate that selling N. Van. at a deep discount would be a bad idea. It remains to be seen what will actually happen.
If they keep N. Van. they will have a mountain of debt to work off over time. There isn’t much room for any setbacks or major problems in their Chemical Business.
The major difference in the method used by the TD and CIBC analysts to come up with their share price targets is the multiple. TD used 7 (seems a bit low) and CIBC used 9.6 (seems very high). They aren’t that far apart on the rest of the stuff.
Through this investment misadventure I didn’t get much right. It remains to be seen if selling when I did was the right thing to do or just another mistake! I hope it works out for you.
As Always; Do Your Own Due Diligence; It’s Your Money !! PS; I see that the usual suspect is spamming the board with the usual useless posts. Some things never change.