Convertible Debs ....Again....“the Board of Directors of the company( the Board) has unanimously concluded that the Delisting is in the best interests of the Company, and , as such, has authorized submission of the Extraordinary Resolution to Debentureholders for approval. The Board unanimously recommends that Debentureholders vote IN FAVOUR FOR the Extraordinary Resolution”
No Kidding?
Of course the Board representing the company would vote in favour of this resolution as it leads to the one year extension of the maturity of the Debenture which is much to the benefit of Shareholders and the detriment of Debenture Holders .
The company stands to gain by conserving cash that would go to paying down the debt as well as saving on interest payments which the company is now only obligated to pay at maturity ( and in shares if they so desire).
But, what does the debenture holder have to gain? Another year of forgoing interest paid in shares of undetermined value, assuming the company still has the funds to pay off the debentures .
The delisting will make it all the more difficult to trade in the securities as clients will have to deal with individual brokerage houses who are prepared to make markets in the securities, an arduous time consuming task as the best of times, particularly so for small corporate convertible issues ( not that trading these securities on a posted exchange has been particularly easy ).
The Debenture Holder also forgoes the capital originally invested for a specified period, to September 2021, and the interest that should have been paid semi annually as originally agreed.
The fact is that the company currently actually has the funds to pay down the debentures this September . There is no guarantee that the funds will be available a year from now to pay off capital or interest.
The fact that the whole process has been so stop and go suggests that there is a bit more “seat of the pants” management than one might hope for as a creditor or perhaps even as a shareholder.
Since the company has made no effort to actually consult with the remaining Debenture Holders ( of the $15-17 million originally raised, something less than $4million still outstanding) , I recommend voting against the delisting and by extension , against extending the maturity by a year.
If , as the company has previously indicated, the vast majority of Debentureholders who voted on this issue in April , did so in favour of extending the maturity. Should that still be the case, then the company should offer the option to Debentureholders to extend or not at Debentureholder’s option.
I do not doubt the genuine efforts of management to build 1933 Industries into a very profitable company, indeed the most recent quarter suggests they may be well on the way to that end. However, would I reinvest money for a year on the terms being offered. I don’t think so. If the company had to go out and raise $4 million today could they do so on more favourable terms to the company? Once again, I do not think so.
But the kicker of the 10 cent conversion will allow many with a reasonable risk tolerance to think differently. However, those people can probably fill their needs by purchasing today on the open market , just not sure there are $4 million worth of them.
Thus, at the very least, the company should not risk Debentureholder’s funds to support shareholders interests.
Improve the terms or pay off the Debentures.