July 14, 2020 04:15 PM Eastern Daylight Time
NorthStream Capital & Argenthal Capital Partners Recommend Sherritt Equity Holders Vote Against the Revised Plan of Arrangement
TORONTO--(BUSINESS WIRE)--On May 13th, 2020, NorthStream Capital & Argenthal Capital Partners presented a proposal to the ad hoc bondholders committee of Sherritt International Corporation (“Sherritt”) to invest up to $50 million of new equity into Sherritt, and requested the bondholders committee’s support prior to the proposal being presented to Sherritt’s board & management.
The bondholder committee refused to sign a non-disclosure agreement, did not respond to our proposal and appear to have used NorthStream and Argenthal’s proposed terms to negotiate the issue of an additional $75 million of payment-in-kind notes from Sherritt.
To date, no other proposal to invest new equity capital has materialized, yet the bondholder committee ignored our proposal, which would reduce interest expense by $24 million per annum (approximately 50%). Our proposal aligns the interests of both equity stakeholders and new subordinated capital invested below the bondholders.
Based on the secondary market price for Sherritt’s bonds (currently in the 30’s), the market does not think Sherritt is either solvent or has a sustainable capital structure.
Sherritt has not fixed the problems of elevated interest expense and corporate overhead that must be reduced relative to the dividends of $43.3 million from the Moa nickel JV in 2019 at a nickel price of US$6.00 per pound. The NorthStream/Argenthal proposal set interest expense and corporate overhead at a level that could be sustained in the current low nickel price environment. The proceeds from the Cuban payment plan could then be used to reduce debt and improve the compressed equity value caused by the high perceived credit risk. Additionally, all stakeholders would have a long runway to benefit from the recovery in nickel and cobalt prices.
In a CBCA Plan of Arrangement, shareholders are entitled to vote on the proposed plan. We recommend shareholders vote against the current Plan of Arrangement to prevent the restrictive covenants contained in the two new bonds from eroding equity value.
We welcome feedback from both equity and bondholders on what they would consider to be an acceptable revised plan. Our intent is to continue to incorporate your feedback into a revised proposal that would be presented to the company and strongly supported by stakeholders.
About NorthStream:
Founded in 2016, NorthStream Capital Inc. is an independent alternative investment management firm specializing in event-driven opportunities in the Canadian and US credit markets.
NorthStream generates investment performance as a result of the firm’s thorough research process and expertise analyzing complex credits.
NorthStream has been recognized by the Canadian Hedge Fund for three Awards in the credit-focused category.
NorthStream is a holder of Sherritt’s unsecured debentures.
