RE:RE:Dilutionmonty613 wrote: TheWolfOfWLU wrote: Throughout the past few months I have read many reports concerned about short term dilution affecting long term growth. Expectations seemed to be that more shares would need to be issued, while in oversold territory, in order to keep creditors satisfied as interest rates rise.
this company is well capitalized - they won't need to issue shares to satisfy their debt payments at all.
both CRH and MyHealth were financed by cheap senior secured bank debt. the banks lent them only a fraction of the purchase price, with the rest funded with equity and options/time based earnouts. WELL just did a debenture raise which would probably cover all the time based earnouts and then some.
CRH and MyHealth are stable businesses with recurring cashflows - they will be able to make their debt payments. the banks monitor their loans quarterly at minimum, so if WELL defaults the market will know. banks aren't in the business of making huge corporate loans that are going to default in this short of a period of time.
I wasn't indicating they would default but rising debt servicing costs eat in to earnings for any entity. LIBOR and CDOr are not less than the FED rate so if the FED raises the expected 4 times or more this year then all debt (cost of money) around the world is affected. Typically LIBOR is FED rate plus a small risk premium. The only way anyone is protected from CB overnight rate increases, at least temporarily, is with issued bonds/term debt. And even then, bond markets have already spoken and continue to speak. The FED doesn't control the bond markets other than buying debt in the open market to artifically keep rates low which, the FED and all CB's are ending. Again, you can see it in bond yields already.
No entity (corporate, personal) is protected from rising interest rates when it is floating rate debt. Callable debt doesn't add to peace of mind either especially when some debt sits on the current liabilities ( due within a year of balance sheet date) of a balance sheet and a company lacks cash to cover it when it is due which, unless it is refinanced (at higher rates), would cause a dilutive event to occur or some kind of negative event to shareholders to cover it. Any business with a large current liability debt on the balance sheet is, or should be, quite nervous at this point unless they have cash to cover it. Most don't.
As mentioned, I do not think they will default at all, but too much debt will not be of benefit and will affect performance. IMO.