RE:RE:RE:RE:155 million shares would roughly need to be issued to repay HCI_STEEL wrote:
As I noted, I own an number of debs, over the last 25 years. I've encountered a few times where the company decides even the interest payments hanging over them is a burden so they covert the debs (and interest) into shares. Toscana energy did it recently. They tried intitally revising terms and then finally just threw in the towel and converted. I ended up with hundreds of thousands of shares and existing shareholders were basically wiped out, becaue the debs MUST be converted based on the average price over the previous 20 days. Of course once they make the announcement guess what happens to the share price? it drops, and they end up issuing a higher number of shares.
As far as any new financing bering fairly expensive....9.75% interest on the debs is already fairly expensive.
Don't get me wrong, i'd much prefer to continue holding the debs and getting principle and interest...I'm just not optomistic that will continue.
Fair enough. But I think the situation here is fairly different from Toscana. From a cash perspective it doesn't make much sense for them to go nuclear at this point, particularly if they can figure their way around the upcoming interest payment. The interest is only $6m per year and they should have a much improved 2nd half.
BUT...
As it stands, it would seem that the debs will preclude new financing. The amendments put stringent restrictions on the company's ability to assume additional senior debt. They will have to work around this in some way. One possibility is to amend with a vote, and another is to pay them off, either in shares (as you say) or as part of the financing (as Contrarian suggests).
In any case, the current price of the shares indicates that you're not the only one who is worried. The market is assigning a high probability of a wipeout, for sure.
A couple other things:
- Yes, the 9.75% convertible is expensive, but it is also unsecured and convertible. The IQ loan at 6% is a gift. I'd expect senior secured financing to be somewhere between.
- I believe the indenture says that the conversion price would be 95% of the stock price on the redemption date.