RE:RE:RE:RE:RE:RE:RE:RE:Another picture - $50m 6% Debentures vs $50m common sharescabbieJBJ wrote: Capharnaum, are you saying regarding the debt/equity question, the convertible debentures do not count against the $200M shelf prospectus? I know the $75M from HSBC does not count because I asked.
They count against the $200M shelf prospectus. The $200M is for QTRH issued debt or equity on the market (ie: senior notes, debentures, convertible debentures, pref shares, shares).
Credit margins and loans issued by banks to QTRH don't require a prospectus.
What I mean is that one important criteria for banks to issue a loan (or a credit margin) is the debt/equity ratio. The amount and rate available from the bank depends on that ratio. For banks, in general, senior notes and debentures add on the debt side of the ratio, reducing loan potential and increasing the rate they will ask. However, convertible debentures, pref shares and shares are generally added on the equity portion of the ratio, which increases what would be available in a loan situation and reduces the rate that the bank will want.
For financial reporting, the convertible debenture will not show up as equity though, since it is considered a debt instrument until the conversion.
In simpler terms, since they issued convertible debentures which is counted in the equity portion of the debt/equity ratio, it will let them borrow more $$$ outside the $200M prospectus to finance acquisitions at favorable rates. If they make another $150M acquisition, they could use $25M of cash (from Wilan deals), the $50M from the convertible debentures and another $75M loan from HSBC (or someone else) to finance it. Using the Q2 balance sheet, after such an acquisition, they would have $150M in debt, $50M in convertible debentures and $250M in shareholder equity, for a debt/equity ratio of 0.5 for banks ($150M / $300M).