RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Segments of Bbd with big growth potentialThanks for the detailed response, BBDB859.
I am not even really concerned about the first five maturities (except for the $1.02B @ 8.75% of course). I don't care if they just roll the full amounts over at the same rates. It's the more expensive back half that they can't afford to pay hundreds of millions in interest for years and years.
I'm guessing that those bonds are callable, given the high interest rates. Just don't know if they are continuously callable or if there is a date restriction. They can do a tender offer, but the bondholders aren't going to give up that attractive return voluntarily.
Should be an interesting week. Looking forward to what they have to say on Thursday, and how the market responds to it.
Jim
BBDB859 wrote: I agree on taking out the First at 8.75% right away Jim.
Having said that. I think they could renegotiate the 5.75%-to 6.75% for the next four by paying off a 35-40% portion of that down to bring them both down to 5%. Total cash use there of $1.2B from our $3.6B on hand. But the new rate should come down to 5% for those first 5 collectively.
That will also leaves some money to be able to renegotiate the next five starting in 2024. The left over money after the first 5 up to 2024, will be $1.4B plus the remaining $1.8B in reserves.This $1.8 of reserves for BA, is still a lot money for them to hold in reserve for operations. So i say use $400M of those reserves too to have $2B on hand after the first 5 collectively have been taken care of.
In the meantime, they could be negotiating the other $4.5 remaining starting in 2024 today. Here is how I would aproach it. Start negotiating with 2024 JB holders immediately today. Say to them, hey, we're taking you by renegotiting with other bondholders. So we'll be paying you off with the penalties today. But if you want to renegotiate the $4.5 to 5.5% we'll put down 35 to 45% or $1.2B. So those bondholders will do the math to place those paid off Bonds at the new lower rate enviroment instead of getting taken out, to see if it's worth their while to do 5.5% for a lower sum. Treat those 2024 Bonds the same way or similar, as the first 5.
By doing this they don't have to penalties.
But of course they will have higher debt service as well, for the first 3 years from 2021 up to 2024. To be exact in the neibouhood of $200M yearly X 3 years = $600M . So they could use some of the extra reserves, say $400M to pay for the extra interest on carrying the higher debt while they're getting their house in order. This again is why they gotta get it done this year. Do all this in 1 year. It w'd be very doable because the first 4 are relatively close to 5% at 5.9% to start with.
This is why time is of essence. If they can get every Bondholder to the table in 1 year they'll save $400M in 2 years, assuming the back 5 Bond holders can be renegotiated within this year 2021 as well.
I know this sounds hard to do with the back 5, 2024 Bonds. But they'll actually will be the easiest. Because they could be taken out totally by new 5.5% new Bonds the Bomber can and will renegotiate, as I said before, and or taken out totaly by paying the penalties for them. The reason the Bomber has to take these out right now is that, the clock is ticking on their interest. $4.5 X 7.5% =$330M yearly on those. They're not due untill 2027 as well, so they could kill the Bomber if they stay for 6 years.
In my estimation if the Bomber follows this simple method.
-Discharge the first one, and pay off the next 4, 2024 maturities today, as I suggest, by putting 35% to 40% down on new JB issues with the same JB holders, or pay the interest differential penalties, which will be very little. But get it done. These Bond holders will want to keep the Bomber as a client since the reduction of interest to them is minimal, it will only go from 5.9% to 5%.
-Then doing the same for the back 5 to 2027. The interest there is $330M for 6 years from now as discussed. That could kill us. That's $1.8 in extra interest for the full 6 year term.
I may be off on my math by $500M at the end of this RESTRUCTURING, because I don't know what the penalties are, that the Bomber may have to pay more for doing this. But their house will be in order, when evrything said and done.