RE: RE: RE: Crowdsource Double Indemnity
Gator, your post is well thought out but there are a few areas where we don't agree.
YLO will likely attempt to enter CCAA. It is up to a judge whether or not they will be allowed.
I agree that this is the big question.
Since I can find no precident for a solvent company entering CCAA, it appears there will be some precidents being set.
CCAA is reserved for insolvent companies, which includes companies that can pay their bills today but won't be able to pay them at some point in the near future. The question: is 18 months from now too far in the future? I'd love to see any precedents where a company claimed that insolvency was "impending" but some investors objected that the insolvency was too far away.
Regarding the equity, the creditors are to be made whole first. Again, remember this is for companies in default or close to default and we are still looking at 2014.
If the company clearly won't be able to pay its bills in 2014, the equity holders are entitled to nothing.
If the creditors accept something that is less than making them whole for the purpose of causing the equity to lose, how would a judge view that?
I don't understand this point. I know you are a sensible person not given to paranoia, but it seems like you are suggesting that the MTN holders would deliberately hurt themselves in order to have the pleasure of hurting the equity holders. This makes no sense.
In the (to me fanciful) claim that the new common shares will be worth $32 or more, the MTNs (and the banks who hate the deal so much that they are suing to block it) are taking more than par for themselves and thereby hurting the common shareholders. I think this view is incorrect, but it's at least consistent.
If, on the other hand, the new common shares will be worth less than $32, the MTNs and the banks are accepting less than par but are giving the common shareholders a small stake in order to get the deal approved. This view is also consistent.
In neither case are the MTN holders both taking a loss and hurting the common shareholders.
The more I look at this, the more it looks like Abitibi in reverse. If a judge is unbiased, it seems to me that they would throw this back and say come back when you are in or near default. I am no lawyer so I don't know for sure. I also think that the bank lawyers would be at least looking at this scenario.
I'm not a lawyer either but I'd ask you to look at it from another point of view. If we take as given that the company won't be able to pay its 2014 debt (which I know you don't accept, but pretend you do for a moment to see the point of view of the other side), then:
- The proposed deal gives all of the equally ranked senior creditors exactly the same deal, which is probably worth about 60% or 70% of par
- The "wait until you run out of money" alternative would give the banks and the 2013s 100% of their money back but would give the other MTNs much less (let's say 40%)
If the judge accepts that YLO faces insolvency, can you see why he might agree that it should be dealt with now so that all senior creditors would get the same treatment?
In summary, no wonder the CBCA judge wants to see the vote before making any rulings. It is one hot potato. If the vote is yes, there are still going to be challenges. If the vote is no there may be challenges but again it is up to the judge. If no, and YLO goes to CCAA, then a judge will be making the calls. This is a big risk to the BOD and the MTN's as much as to the equity holders, I can see why Steinburg and the bondholders want to avoid this.
The ideal situation for the judge is if a company comes to him with a deal that everyone agrees to. I personally think that the judge will refuse to step into this minefield and say "you can't do this under CBCA". What this judge or another judge will say when YLO comes back with a CCAA proposal is another question.