Post by
mrmoribund on Jun 11, 2015 12:46pm
Why BMO will give this every chance to turn around
That's the big question, of course. If BMO insists on repayment then there is no price that's too low. Here is why it's a good bet that they won't--or at least they'll give LOY a substantial opportunity to straighten things out.
If BMO pulls the plug there would be little point in LOY even looking at a desperation financing. The press is so bad that no one would touch it. Or it would be tantamount to giving away the company. What would happen is that LOY would enter CCAA.
If they enter CCAA, the intangibles would, of course, disappear, equity would be negative, and the shareholders would obviously get nothing. BMO would be looking at a bunch of assets, schools, that are good assets as working, operating assets, but lousy things to try to sell in a fire sale. So even on a vanilla liquidation or school portfolio fire sale, BMO would likely be taking a big hit.
But there would be a big problem for BMO, that could actually leave them with little or nothing. If LOY goes into CCAA then the parties that bought shares at 40 cents will likely claim that LOY sold those shares on the basis of material misrepresentations & so claim they should get their money back on the basis of oppression (or even worse). This alone would make the CCAA a bonanza for the lawyers and the monitor and, otherwise, an ugly mess. If the monitor & court sided with the shareholders who bought at 40 cents then BMO could end up with nothing but huge legal bills.
Those same shareholders suing--which, they might--while LOY continues as an operation, is not a serious threat to the company because the company would be able to drag it out long enough that, if the turnaround works, by the time it gets to a courtroom the stock will be back over 40 cents and the complaint will disappear. But this doesn't work in a CCAA.
BMO's incentives heavily favour giving LOY every chance to fix this.