Short term Postive News - New PosterSo I've been reading alot of these posts and wanted to weigh in from the sidelines. I believe the 350MM debt issuance is positive and will highlight the valuation below. If the tender is below 6% - which I assume it would be referencing what the other senior secured notes are trading for at the moment the following thesis holds. Ill be referencing Q2 figures:
1. 350MM Debt Issuance is perfect - It does address liquidity issues - the company has this
- Cash on hand is ~150MM is insufficient to meet near term obligations
- FCF expected for second half of the year ~200MM
Obligations Due:
- ~200MM to Cinven (One payment in December - second in February)
- Long term Debt sink (~30MM)
- Interest Payments ~130MM
Your first question is FCF ~200MM for Second Half of Year?
- Yes; I have a model but lets do some back of the envelope calculations:
CFO: 236MM
CFI: -36MM
FCF = 200MM
2. Now how does the 350MM debt add more issues? Isn't this dangerous for shareholders. WRONG!
- Management can use this debt as a cushion to reset:
Actions likely taken:
- Payment of Bridge Loans of Amco due in 2017 (will address below)
- Payment of Cinven Payments
3. Payment of Bridge Loans:
Concordia only has 1 obligations due by Oct 2017 - bridge loans to the tune of 30MM at 9.5%
- Management can pay this down as well as pay down the unsecured bridge loan of 100MM which is also at 9.5%
- How is this postive? We add 21MM more interet payments with 350MM issuances right?
We also have savings for a year from the basis (9.5% - 6%). Furthermore This relieve Concordia of all obligaitons until 2021. (addressed below)
4. LT Debt Profile
- Current debt profile is extended to Oct 2021
- This leaves the company ample time to revaluate its strategy, strengthen its balance sheet, and focus on paying down secured debt facilities and generating FCF. FCF will be steady at minimum 350MM a year (note this a rough very low ball figure at the worst end of the spectrum factoring in a negative 2% growth). Its insane to think otherwise. People forget to mention that costs also shrink.
- Company should be able to pay down 1Bn before 2021
All the above points are quoted in USD terms. Expectations are that liquidity profile will be strengthened and that the debt will be tendered successfully. Despite this I expect a revision in Q32016. The market has negative pressures yes - but the -2% terminal growth factors this.
The above opinions are my own. I am long CXR/CXRX. Avg price is 13$. I will now quietly sit on the sidelines. Happy trading everyone and goodluck.