Debentureholders vote on death-spiral-like terms All the following is my opinion only. Read important disclaimer at the end which qualifies everything here.
RUM is attempting to rewrite the terms of the debentures. I was prepared to vote in favour until I read the following change:
"Permitting the corporation to redeem the amended debentures at any time up to April 30, 2021, in whole or in part, at a price equal to the lesser of (a) the principal amount thereof plus accrued and unpaid interest to, but excluding, the date of the redemption, and (b) 125 per cent of the volume-weighted average trading price per amended debenture for the 20 consecutive trading days on the TSX Venture Exchange ending on the trading day immediately preceding the date of the notice of redemption" [my emphasis]
Furthermore, it appears the company is planning on redeeming, on these new terms, 15% of debentures within days of the amended terms being approved.
So, if debentureholders do not approve the new terms, then according to the old terms, the company, according to my understanding, must pay them all back 100% in a few months. However, as I see it, if the new terms are approved, the company will be repurchasing 15% of the debentures, potentially at a steep discount.
For example, if they debentures keep trading at their last price of $40, then the company can buy them back at 125% of $40 which would be $50.
So for being agreeable and approving the new terms, the company could show its appreciation to the debentureholders by forcing them to surrender their shares at half of their face value.
Let me give you another scenario. Let's say the company falls on hard times and misses a few interest payments. Let's say that the debentures then falls temporarily (for a few months) to $10. The company could then jump in and force the holders to surrender all their debentures for $12.50 each. That's what 125% of the trading value could mean (correct me if I'm wrong).
It's already fallen to $40 on this news. What's to stop it from going to $10 or even $1.00?
Why would debentureholders voluntarily give up their protection to be repaid in full, and accept, instead, this new death-spiral certificate?
Can anyone explain why this proposed change would actually benefit holders such as myself? If not, I plan to vote no.
Important disclaimer: All the above is my opinion only. It is presented for discussion purposes only. None of it is intended to be taken as fact. As such, it is all not reliable. So do not use any of it to make decisions or judgements or to form opinions, and do not use it as the basis of any action. If you do plan to form opinions or take action on anything discussed, first seek your own independent, expert advice.