RE: RE: what were they thinking? akell, I agree with you that turning a right to buy at $8 a share into an obligation to buy at $8 a share requires Olympics-level gymnastics ability.
But the convertible debenture holders are junior to the banks and MTNs. Nobody is disputing that.
Under the proposed restructuring, the banks and MTN holders would get less than 100% of par value. Only a handful of people on this board are disputing that.
Since the banks and MTNs will take a haircut, everybody who ranks less than them could be completely wiped out and that would be fair.
The proposed deal would leave some money for the stakeholders who are junior to MTN holders. However much or little they leave behind must be divided fairly among the remaining stakeholders.
What methods of dividing the crumbs among the stakeholders who are unquestionably junior to the MTN holders and banks would be fair?
The deal proposes to convert the debentures into common shares at $8 a share and convert the preferred shares into common shares at $2 a share and then treat all of the resulting common shares equally. Is that fair?
The strongest argument that the convertible debenture holders have is that they are only getting 1/4 as much as the preferred shareholders who are unquestionably junior to them. This complaint would be much weaker if YLO treated all of the junior stakeholders equally. (I think they could get away with ignoring the precedence of debenture > preferred just as they are ignoring the precedence of preferred > common, but reversing the precedence and putting debentures below preferred and common seems like a very difficult thing to sell to the judge.)