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Oh and for anyone that's interested, it's going to be annoyingly slow getting these positions properly marked with brokers https://www.fticonsulting-emea.com/~/media/Files/emea--files/creditors-portal/cip-emea-public/debenhams-plc/joint-administrators-proposals-28-may-2019.pdf
There's 0 value left at the top but they have to go through the motions
Pearls, it may have have been a disaster but it was entirely foreseeable. You were warned by many people on here over the course of several weeks / months. If you chose to ignore that warning from people who know what they're talking about, then it's completely on you I'm afraid.
"Was any attempt made to raise cash from shareholders before the NAV dropped below zero? " Yes, but MA didn't agree to the terms.
"Why were constant offers by MA to inject cash into the business continually rejected in favour of creditors money? " That is up to the creditors to decide. If they didn't like MA's offer, then they didn't have to take it.
"Were loan covenants unreasonably favourable to creditors and designed to deliberately to hinder any shareholder raising of funds?" Potentially, but the alternative (when the covenants were negotiated) was probably that this whole thing happened much sooner because financing would not have been available to the Company without such protective covenants. Maybe a rights issue could've helped, but I think we'd also be at a minimal value for shareholders now. Would've been worse asking them to put in more money 1-2 years ago and for that money to become worth significantly less.
"All good questions for our learned friends to consider, and none of which anyone not in possession of all the facts is able to answer, and that includes you daniel.f" True, but I do have quite a lot of the facts and a full understanding of why this happened the way it did and why it was not illegal or fraudulent.
Not strange at all – for the (probably not) last time, the BoD didn't really have a say as the lenders were in charge. How many times does this have to be explained?
My advice is to take everything directors say with a pinch of salt. They're (or rather their lawyers are) extremely picky with the words they put in public statements. If it looks like a company is heading for a restructuring (where shareholders are out of the money), it probably is – regardless of how the directors dress it up to maintain supplier confidence (which obviously failed here)
Pearls you're getting confused again. It wasn't really the board who rejected it. It was the lenders, who held the ultimate leverage as without their consent, they could've taken the company in a disorderly insolvency process (vs. the actual orderly process) AND left MA with nothing after putting in the cash. Leaving aside the conditions that MA put on his RI (incl. making him CEO and with a get-out clause) which were unpalatable to any board.
As for the directors' conduct previously, I'm a little confused about why you think they deliberately took on more debt? If they did do that, and had no purpose for the cash, the cash would just sit on the balance sheet, which would just cancel out the debt that was raised (and nobody is in any worse position, except for a relatively minor amount of interest). The key point is that the directors didn't deliberately take on more debt, they were forced to take on more debt as their performance had collapsed and working capital was squeezed. It really is basic corporate finance.
Any talk of compensation for shareholders due to the administration is delusional at this point. No-one wanted to buy this business at full value of the debt even with a CVA pretty much in place. That tells you everything you need to know.
If you think directors broke the law in giving public statements to shareholders (think October 2018), that's a different matter. However, I think it's very very unlikely as all directors can claim that everything was based on information at the time
The administrators were very clear that as part of this subsequent sale process, anyone could bid and if bids came in at acceptable levels, value could theoretically flow back to existing shareholders.
What makes you think MA couldn't bid in this process? If his bid came in high enough to cash them out at a great return, I find it hard arguing that they wouldn't accept.
https://www.ft.com/content/9b6e6cb0-71d1-11e9-bf5c-6eeb837566c5
Well there you have it ladies and gentlemen, despite Lazard running a sale process, no acceptable bids were lodged. That means that nobody valued the business higher than the debt, and the true intrinsic market value of the shares is 0.
Not even Mike Ashley could pull out his miracle bid in this process huh?
Should've been valued at market price IMO. Unfortunately, (and as far as I know) IFRS allows companies to value equity stakes through their own DCF models, and as long as the methodology is robust, it is allowed. Crucially, I do not believe the assumptions that go into such a model are scrutinized.
Isn't this exactly what happened with the likes of Noble Group and Yancoal? I think Noble's stake in Yancoal was something like 13x the market value on its balance sheet (all from memory).
Yep, crucially this was in the hands of the lenders.
You see, they had the final say on whether a rights issue on MA's terms would go ahead. If they didn't like the terms (and MA did not accept any counter-proposal), then it was a going to be a no.
Also, it's probably worth pointing out that should such a rights issue have gone ahead, existing shareholders would have been highly diluted (as most would / could not be able to put in the money required to protect their stake). It would not have ended very well for existing shareholders at all. Most probably would've been cashed out in a post-rights issue reverse stock split at a de minimis price
Throw, toys, pram.
Imagine having a mindset where if you're wrong you say it MUST be fraud, rather than just the most obvious result from basic finance, contract and insolvency law. It provides for a useful insight into how the human mind works
IT'S ALL ONE BIG CONSPIRACY ISN'T IT? Couldn't possibly be that you just made a bad investment?
Not trying to shut anything down, just explaining why you're wrong.
Listen, mate, if you want me to explain why what you're saying re debt / equity payments is completely nonsensical (and would be hugely damaging for the economy), I'll happily do so over a beer.
For the record, I do hold long single name positions in my portfolio as well as long the index. However, the single names are all european and do not appear on this board (or have 0 share chat).
KNIGELK – you need to really think about the statement you just made. Of course shareholders rank at the back. Think about the practical implications if this wasn't the case. Can't pay your mortgage? Don't worry, the bank ranks behind you! Oh wait, under those conditions the bank would never lend, you wouldn't have a house, and (to magnify that little analogy), growth would be tiny. Debt fuels growth for shareholders in the economy, but when certain businesses decline, the debtholders need to be repaid ahead of shareholders.
Final point on American spellcheckers – if you've worked in finance, you'll know that the majority of documents produced in London use American spellings. It's just the norm and even though I try to protest, it filters through into my everyday typing inadvertently >:(
What I find so astonishing about all this, is that the steps that were taken by the lenders and board here have been in company law for decades. They're not "obvious robbery" and it's not a "corrupt system". It wasn't a conspiracy against shareholders, it's simply that the business performance declined to a point where the value didn't cover the debt. At that point, the shares are effectively worthless and this process simply crystallised that. The shares were a bad investment as their intrinsic value was 0
100% agree with Devon here.
The directors' duties are towards creditors in this situation, and fundamentally no-one would lend to any company unless these rights and remedies (including directors' duties) are available to creditors.
I very much doubt there will be a successful legal challenge to this. For one, if a bid for the company comes in higher than the debt through Lazard's sale process, it will mean a return for the old shareholders! However, I think this is very unlikely as I don't think the value clears the debt. If this isn't an absolute clear-cut sign that the shares are worthless, I don't know what is.
KNIGELK – as for "moving on" , I have moved on to the next investment opportunity – and that is which watch to buy with some of my gains ;)
Lol I can assure you I won't be working until 90, and it certainly isn't be through "taking a punt"
Leaving that aside, the point about directors' duties and the valuation of the shares has been covered here countless times. If you don't understand why the shares are worth 0 while the Company is "still operating with a internet sales site and all stores still open", then I'm afraid I can't help you. I suggest a fundamental course in finance (there are many for free on the internet).
It wasn't some conspiracy or "legal robbery", it all played out pursuant to the clear rights and remedies available to the lenders and bondholders in the publicly-available terms and conditions of their debt documents. Not the board's fault if you didn't read them.
As a side point – "legal robbery" is a contradiction in terms. If it's legal, it isn't robbery. And if it's not robbery, it's not something to get outraged about. Accept that you made a bad investment and move on.
Nobody robbed the shareholders. People were warned on this board for months. A lack of understanding about valuation, debt, directors' duties and restructuring processes does not mean you were robbed.
You don't need to close. Eventually, the administrator releases a statement that there's no value to the equity and then your broker marks it as 0 and the shares never need to be / can't be returned.
You essentially borrowed shares, sold them in the market, took that cash from the sale and never gave back the share :)
Pearls, I haven't seen the numbers, but when did insurers stop underwriting trade creditors for deliveries to Debs? I would imagine they say a huge contraction in payables which is a direct cash outflow in a short period of time. Payables balance would've been £450-500m and operating at c.60 days. If this was halved, you'd see a £250m outflow within 30-60 days, which would be funded with the RCF, bridge loan and now new facilities. Not to mention they clearly needed money for rental payments. It's been a while since I had a close look at the cash flow statement, but I remember it being pretty dire, especially as earnings declined – all shortfalls were funded with new debt