FormerXBC Inc XEBEQ

RE:72. in Second Report to the Court submitted by Deloitte

[AlwaysLong683]

LyChauncey wrote: Not sure the motivation behind of the claim "all shareholders equity is gone". 

72. As described in this Second Report, the Cash Flow Statement indicates that the Petitioners should have sufficient liquidity to continue to meet its obligations in the ordinary course of business with access to its current liquidities and existing working capital.

Note in Appendix B the Net cash should be after deduction of current 25 million due. Liquidity is very tight in the near-term indeed. Q3 result may as well fix the covenant ratio. If creditors are happy and not-greedy af type (EDC, NBC and FSTQ are supposed not to be vulture funds), some 10~30 millions 2 years short term bridge financing seems more than enough for Xebec to execute its 3 year plan.

If this was the case:

1) Why didn't XBC use the liquidity they apparently had to honour the terms of their debt obligations? When push comes to shove, honouring debt agreeements trump any other uses of your cash, for if you default on a payment, a secured creditor can seek to initate receivership to recover the amount owed to them.

2) Why did one or more creditors decide not to relax or amend one or more debt convenants that would have avoided the need for XBC to apply for CCAA creditor protection? Much easier to cut XBC some slack than go through the CCAA process, that is unless the creditor has lost faith in XBC and is willing to see what kind of outcome will result at the end of the CCAA process. Creditors are not interested in whether or not they made a lending mistake. They will pick the option that is in their best interest going forward in getting their money, and at least one of them decided the chances of getting the most they can out of XBC was to allow XBC to apply for CCAA protection than it was to try and work with the company to arrive at some compromise.

3) Who's going to provide bridge financing to a company that is already in debt trouble and has spent the past few years gobbling up other companies at large premiums to their fair net asset values, only to turn around and now look to sell some of those assets, likely for much less than they paid for them not long ago and take the commensurate hit to Goodwill? If XBC had management creditors viewed as solid and were the victim of unfortunate events instead of self-inflicted wounds, perhaps creditors would still have confidence in the company and cut them some slack re. debt obligations.

Baylin (BYL) is another debt ridden company that could have joined XBC in the CCAA process, but it was able to obtain relief from creditors. Whether it was deserved or not, RBC and HSBC amended credit agreements it had with Baylin to give it more breathing room. Conversely, one or more XBC creditors were not willing to do likewise and decided to take their chances in the CCAA process, thus consuming more of their time and energy than simply amending debt agreements.