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Bill,
600m total shares
25% = current total shares (150m)
75% = total new shares to lenders (450m)
It comes down to what price the lenders get the shares at.
At the current (unbalanced deal) they are given shares at 8p
At this level the 75 / 25 split only rights off £36m of debt - which is clearly no where near enough.
To write off the current £450m debt ( they intend to write off) the lenders would have to accept shares at £1.07 which clearly they would not accept.
Coltrane are frustrated for many reasons with the deal, but one is the fact the SP has been driven down unduly due to internal leaks by Interserve & the Lenders.
The current SP being so low gives the Lenders a big advantage (massive number of shares for their £480m debt right off).
A more realistic / balanced deal that Coltrane might accept would be this:
Lenders initially take some pain (receiving 75% equity for the debt swap.)
The SP level is set at a more realistic post DfE value and not discounted against the current rate.
Let's us suggest a post DfE SP of 40p based on £175m EBITDA and 3bn per year turnover.
75% of £480m debt reduction is £360m
So lenders would get £360m equity at 40p to clear £480m debt
£900m new shares at 40p = £360m
This is an 85% / 15% split and probably the very best scenario. Lenders would get every penny back as the SP rises.
To get to 75% / 25% you are reducing the amount of debt you are converting.
450m x 40p = 180m ( but increase to £240m as lenders only get 75% equity for their debt in my example)
So the 75 / 25 split would only get rid of £240m (half the debt they are currently converting)
Very quick calcs so hopefully I got them right....
Feilb-thanks as I said before they don’t need to reduce debt so drastically. At the moment 240m will be more than enough to give the company some breathing space as well as preserve some value for shareholders. I totally agree about the leaks, this was a setup from day one. Like you say they could easily done a d4e at £1, 80p of even 50p which would have been way less painful, but they waited until the 11th hour and deliberately sucked the life of the share price.
Bill
The 85% / 15% split example (on my previous post) demonstrates why the lenders are being greedy:
900m new shares at 40p
150m existing shares at 10p
Total 1.05bn shares at circa 36p post DfE
Company has a total value of £378m with low debt to ÈBITDA ratio. £350m debt loaded on RMD and £75m cash in the bank. Forward sales of circa 7bn with 3bn per year turnover.
This position would be market leading relative to equivalent peers.
As soon as the SP rose from 36p above 48p the lenders get every penny back.
The SP in this situation could after time theoretically rise to £1 (the company being valued at 1.05bn)
A lot of existing shareholders with higher averages would still lose but at least they could walk away with shirts on their backs!
This is the sort of deal the BoD should have held out for. They should have threatened liquidity to achieve this. The lenders would take a short term hair cut but very limited risk.
But the lenders were greedy and the BoD not strong enough.
Hence the current situation with Coltrane & Farringdon!
I just hope the BoD are big enough to admit their deal was too hasty / unbalanced and are renegotiating with the lenders.
75,000 worldwide employees would weigh heavy on anyone. But they are currently giving interserve away and the Lenders will double or treble their money with no risk.
The BoD must know "in the clear light of day" that deal can never be right.
History will judge them very harshly indeed if they continue on their current path. And the mistake will be clearly evident within 3 years in my view.
A deal like this would make logical sense but as you say people with high average like myself still loose out but I get half my money back. I could also average down to around £1 when the company is more secure and get all the money back in theory.
However the deal can go like this
6bn shares at 8p
Coltrane and Farringdon here’s 750m (12%) shares for you both for voting the deal through
Shares rise to 16p
Both sell raising 120m between them
Result= both walk away with their investment plus profit, normal share holders still been screwed with no chance of getting anything back
Bill,
Yes a real possibility that Coltrane and Farringdon will look after themselves and the BoD don't do the right thing by regular shareholders and insiders.
Teresa May had two years to put the BREXIT deal together and only started trying to renegotiate when it was voted down.
The BoD have had one year to put their deal together and are wont renegotiate their deal unless it is voted down.
Unfortunately human nature will dictate, that with the ego''s on the current Board they will not even be able to admit to themselves that their deal is wrong and certainly not to existing shareholders.
If Coltrane and Farringdon are paid off, it still leaves 63% of shares in existence.
Let us say that 10% of those shares are held by Employees who will back the deal (there will soon be a lot of scaremongering from the BoD).
This leaves circa 53% shares. Everyone of these shareholders would need to vote for removal of the BoD for the deal to be prevented. Unfortunately this is very unlikely to happen due to apathy.
Feilb that will certainly not happen. If Coltrane and Farringdon get a good deal, then there will be no resistance. Look at the RNS on 2nd January where they are issuing around 15m shares to the lenders as way of warrants. I see these will make it into the market before the 2 votes. As the lenders already have around around 4.5 (well what’s in the public domain) this gives them a total voting right of around 13%.
Add to that the 10% you mentioned below and they are almost catching up Coltrane and Farringdon, so they have some strong support.
Also done some digging around on the Rbs and the split is 50/50 between iis and PIs. Main holders are Coltrane, Farringdon, SLA, UBS and switch’s bsnk