CBA sold it's debt at 85c/$1 last night.
Given the lease liabilities + outstanding debt, the equity must be worth zero or close to it. If you can buy the debt at 80c you could probably end up owning something that will be worth a bit more in a few years.
So what's with all this buying of the equity? The only 2 possible explanations are short covering or buying votes ahead of any recapitalisation proposal...
Just don't understand why it needs to be done so aggressively.
So what's with all this buying of the equity?
...
buying votes ahead of any recapitalisation proposal...
One thesis: equity has already been discounted so much that it will retain some value in any recap/wind-up and value will fall in the equity. In recap deals it is all about finding where the value waterfall stops: from senior debt to subordinate to preferred stock to equity etc.
Maybe BBG half-year gives hint when it states that even with breach of covenant only 85% of EBITDA demanded in support of financing facilities. If $10m EBITDA p.a. for equity and ~8x EBITDA valuation gives ~$80m (which is near enough to current price).
Equity seen as an option on any upside. But downside looks pretty bad unless you also hold something higher up in the capital structure.
Probably this, although I do wonder whether equity will have any say in the recap. That being said in terms of equity this is a microcap now, even a 45% move in the SP price was only ~$30m and has changed the EV by <5%. I guess that makes it small change, especially if you're buying the debt at a 20% discount to face value. And you end up with some element of control if equity still does exist.
Given that debt is changing hands at 80/85c in the dollar, it's pretty hard not to conclude that there's no value left in equity. A recap plan may give some token share of the recapped company to the existing holders. I remember the old BBI (Babcock and Brown Infrastructure) recap saw existing equity diluted to something like 0.06% of the new structure. They even rubbed it in by rounding it down to 0% in one of their announcement!
I seem to remember that in certain company structures, the equity holders can choose to sink the ship or accept a recap... BBI above and Centro came to mind.
Well 30m shares changed hands at ~15.72c VWAP yesterday so it costed ~$5m. That's quite a lot of money relative to the size of the debt.
Well 30m shares changed hands at ~15.72c VWAP yesterday so it costed ~$5m. That's quite a lot of money relative to the size of the debt.
If you include the leases (and I'm not sure how easy it is to wriggle out of those) then it's a small fraction (<1%). There's probably also a few retail punters who see that the sp is "cheap". I guess we'll know in the next couple of days when/if the holder interest notices start coming in.
Basically, my point is that a couple of days ago the company had an EV of ~$700m (debt ~$240m (at 80%) + lease liabilities $400m + mc $60m). Even now the EV has only changed marginally to ~$730 If what you said is true and equity can either sink the ship or recap it, then it seems like small change in order to end up with some form of control, or at least being at the table. That would seem to be the only value left in the equity.
Cool, thanks for the heads up.
Guess we should wait to see what it does when if it decides to retest that break at .68
And probably .60
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?