Algoma Central Corp AGMJF

Conversion of debentures to common

[dangood]

Following this dividend we expect an adjustment to the conversion price of the convertible debentures, reducing it to $14.10.

With the commons trading roughly 4% above the conversion price it would be beneficial to have the debenture holders convert and then sell their shares. this is likely keeping a lid on the share price as algoma just reported their best 1st quarter EVER. And they will  have some new ships setting sale in 2024.

With the debentures at 5.25% this means the company will be saving this interest - which will go to the commons of course. When companies trade at a steep discount to book ($14.67/20.14 this is an added benefit as the earnings benefit will be enhanced.

[Thor16]

Could you elaborate on how the dilution below current market value beenfits existing equity holders?

[DanGood38]

Algoma will save, I figure, $4.33 million ($82.5×5.25%). At book value the savings to the existing shareholders is like getting rid of debt at 5.25% but since the shares trade at 70 cents on the dollar the savings is like getting rid of debt at 7.5% (5.25/.7). This should nullify the effect of issuing shares at 70 cents on the dollar (which I hope they don't do but it's still up in

[Thor16]

I appreciate your comments however I am not following the math.  ALC's dividend yield is higher than it's debt payment and the dilution cost alone is expensive without getting into the numbers. At least it pushes down the price for anyone wanting to accumulate additional shares.

[DanGood38]

I'm  just saying the $4.3 million in interest savings is amplified on a $575 million dollar company versus a $750 company. The debenture will not necessarily be converted (at least not 100%) as I am sure some bond holders want bonds. And yes the shares I agree are being held artificially low because of the threat of dilution. It is my #1 holding in my corporate account. Why get dividends

[Thor16]

Valid points.  I understand. 

[Tim2Agami]

i As the conversion date gets nearer, your prediction of the softening of the share price is, as suggested, as it fades nearer to the $14.10 point. A few days left.  The chart looks like a plan of the lift locks on the Welland, headed from Port Colborne to Weller. Will there be a Thorold? It would be a nice time for ALC to step in with its NCIB to sweep up some of the paper being dropped by

[Thor16]

What number of debentures is still oustanding currently?  Looks like the bulk of the debentures have already converted at this point?

[DanGood38]

It looks like roughly 1/2. End of the quarter report shows something like $47 million still outstanding (down from $63 million at year end) and TSX roughly the same for $82.5 million issued. The good news is that maybe this stock will become less illiquid and the liquidity discount disappear?

[Thor16]

Thanks Dangood.  Time will tell! :)  Lots of options on the table for them.  I suppose we will see if they use some of the new debenture (assumption there) proceeds to buyback stock or not.  Should be somewhat telling.  Company kicks off a lot of cash