RE: RE: RE: RE: RE: RE: RE: ylo is in no finance t Onereality:
I think your perspective is very short sighted and attitudes of this type will drive the company into bankruptcy shortly after CCAA. Look at the chart on newly issued Air Canada shares since CCAA to understand what I mean -- and that's an essential service. This is a marketing company, if the bondholders hold on too aggressively to their sense of entitlement instead of concentrating on what's best for the business, the new equity is going to get wiped just as quickly as the old as advertisers go elsewhere. Every time I raise this point, you go on about how I don't understand the difference between CCAA and bankruptcy. I do fully understand the difference and how "easy" CCAA is in terms of swapping some portion of debt for equity, etc. I think I may just be trying to look a little further into the future and project where things are going.
In the slightly longer term view which you seem to be glossing over, a lot of ill will we be created by bond-holders who refuse in the pre-CCAA days, to negotiate. As I've said before, there is probably going to be a LOT of tension between the banks and bond-holders. There will be a lot of disgruntled groups (debenture holders, pref share holders, old shareholders, employees with stock option plans, etc) who will be keen on lawsuits. All this will erode the business and make it hard to find new financing in order to go in new business directions.
Bottom line is that equity is not worth the paper its written on if the fundamental business problems aren't solved. Those are less likely to be solved if the banks are fighting with the bond-holders over their piece of the pie and everyone else is thinking of ways to sue.
I think it would far better serve everyone's interests if bond holders exchanged some debt for some equity in the current structure and re-negotiated some maturities. At the same time, while everything is so cheap, the company could probably buy off a bunch of the pref holders, debentures and steer clear of legal wrangling.
I think there are very workable solutions that get the banks and equity made whole in the relatively near term. I think the 3 cent common shares have a lot more value in terms of growth potential than brand new $20 shares that are going to get trashed by the markets just as quickly as the old ones were. The sharks are still out there and love this company -- this time last year, the shares on loan where among the higest I have every seen at any company.
If the debt crunch is shown to have a workable solution, even if it takes a few years longer (not ages longer but 2-3 years on some maturities), then the 3 cent common shares are going to have some significant growth. This will support new investment much more than $20 shares that are trading at a dollar by 2014. The fact that the company showed a committment to recovery will demonstrate the kind of maturity that the investment community is presumably looking for.
Yes, there is probably a share rollback down the road in this scenario -- you can't have a billion shares out forever. However, in absence of a huge debt pressure and with stable online sales, shouldn't the equity of this profitable company be worth at least a billion dollars based on typical EBITDA multipliers? If that's the case, even if there were a billion of the current cheap shares out there, at 3 cents, the market is saying that equity at current prices is only worth 30 million. If 30 million appreciates to 1 billion isn't that a 33 fold gain? On the other side, can you honestly tell me that the new $20/share equity is going to gain ANYTHING in the coming years while the business is rebuilt?
Yes, some concessions would need to be made for bondholders to made to tap into the current equity structure -- e.g. a mix of partial debt for equity swaps and renegotiated maturities. However, even if 2013/14 MTN holders took a 50% haircut and got equity in exchange, I think there would be a much more viable recovery scenario than the one you get with CCAA and all the ensuing wrangling. It's likely you'd be "made whole" in 2-5 years and morever, you'd have 50% of your cash to boot as the MTNs mature. Conversely, in a CCAA situation, you probably get much less cash in the early goings and moreover your equity is likely to depreciate to a 10th or less of its value.
I tend to think pre-CCAA deals work out far better for everyone concerned. I'm probably not going to convince you of that. As you've said, there is a tried and true path out of these situations once greed and short term thinking takes over. The winners are the lawyers and why would we want to change that established pattern.
Mark