RE:RE:RE:RE:RE:Voted NOI admit that I'm confused about a couple of comments that I've seen before, and are repeated in this thread.
1) I reviewed the original prospectus and it quite clearly gives Zargon the right to make a "Common Share Interest Payment Election" in which case Zargon has the right "to satisfy its obligation to pay all or any portion of the Interest Obligation on an Interest Payment Date by delivering sufficient Common Shares to the Debenture Trustee for sale, to satisfy the Interest Obligation". This right is also acknowledged in the information circular under Risks Relating to Zargon.
2) That may bring up the 25% dilution comment. I'm confused on that because the currently proposed exchange, which far exceeds 25% dilution, contains no condition requiring a shareholder vote, nor is there any indication of a pending vote. If a vote is required, then the "assumed" effective date (January 11) seems a bit strange, since it's impossible for a shareholder meeting and vote to occur in that time. If this exchange can be made without a vote, I can't see a reason why exchanges explicitly provided in the trust indenture/prospectus would not also be allowed. I'm not saying it's not a consideration, just that I can't make all the pieces fit.
3) Since the number of shares required to cover the interest payment is far less than to redeem the debentures, the dilution effect should *technically" be less. Of course, now that management's intentions are clear, it may be that "what we see is what we get". In any case, as far as interest payments are concerned, the price should be no worse than the current 4 cent market price. Capturing the interest payments alone adds significant value to the debentures, and does not impair Zargon's cash position any further than it already is (as far as I am aware), nor does it imply insolvency. (As a totally tongue in cheek comment, the guys who seem to think that the true value of the shares is greater than 10 cents should be willing to snap them up at half that price - win/win)
4) In reviewing the information that I have here, I found one curious thing absent: a fairness opinion. When Zargon requested changes to the terms of the debentures, back in February 2017, the documents included a fairness opinion from Macquarie Capital Markets Canada Ltd. This time around, there is nothing. I could speculate on why, but I won't.
I would be curious is anyone here has any experience or knowledge of these points and could explain.
Method wrote: rad10 wrote: Method wrote: The only issues I see with voting no is that the receiver will likely get more than the equity holders and the convertibles are an impediment to any deal for less than $42.5m in value.
The idea that they can pay PIK interest is unfortunately not possible so that’s when they will default and go into receivership.
The receiver will get more. The equity is worthless and you can't expect them to work for free.
The convertibles are not an impediment. They are trading where they are for good reason. Any prospective buyer is looking at the whole enterprise value. They can make an offer for the debentures or ask to cancel the change of ownership redemption clause. I would be very receptive to that idea if there was a firm offer on the table.
As for PIK in lieu of March interest - of course it is doable - just another amendment requiring a 2/3 majority vote like any other. Which debenture holder would vote against that? Nobody in their right mind.
1. Why pay the receiver more than the equity holders? Shouldn’t we just want to pay the least so there is more for the debenture holders?
2. The converts are an impediment because you need the equity holders to agree to a deal unless we are in receivership but then of course the process is extended for 12-18 months.
3. Management does not seem to want to go down that path and you would need equity holder support as it would be more than 25% dilution. Many more costs and we probably won’t get equity holder approval.