Member Info for dflynch

Any thoughts on this anybody?

Hurricane has issued a Convertible Bond which matures in July 2021.

Hurricane has the option to issue 442,307,692 new shares in settlement of its maturity obligations. Effectively an 18% dilution of existing shareholders.

There has been discussion about the strategy of purchasing these CB’s at their currently discounted price. Hurricane is not permitted to do this piece-meal and would therefore require about US$125million to purchase the whole issue at current discounted CB prices – if CB holders would allow it!

An alternative is to purchase some, or all, of the required shares from existing shareholders. The required 442,307,692 shares at current SP would require the expenditure of some £11million. Clearly any such large purchase would affect the current SP. But if the BoD were to make a “tender offer” at a price of 5p I am sure many would take-up the offer.

Substituting re-purchased shares for those new shares currently to be issued in July 2017 would reduce the dilution.

It is a bit “smoke and mirrors” - but isn't that what company finance is all about?

I am sure that contributors will have their own slant on this novel strategy.

So – any thoughts?

They don't need money - just issue the shares.

It is a Convertible Bond and convertible at Hurricane's option.

Reading yesterdays contributions and the 2017 document might be helpful .

JS

It is essential to read the sentence in the July 2017 document “The Company will have the option to redeem all, but not some only, of the outstanding Convertible Bonds:” in conjunction with the two conditions that follow it.

I believe you to be incorrect on what you have stated regarding a “forced conversion” clause. The CB holder has NO choice, or right to demand the newly issued shares, or receive the cash alternative, before maturity in July 2022.

Hurricane can, however, choose to redeem ALL the CB’s before the maturity date by satisfying the requirements of the CB at maturity, once the first condition is met!

As to why the “mop up” clause is necessary is a mystery – unless it is an indication of sloppy drafting. If Hurricane were to exercise its option to redeem ALL of the CB’s early, as a consequence of first condition being met, then there would be no reluctant Bondholders with CB’s to “mop up”!

My assertion regarding Hurricane’s inability to redeem the CB’s piecemeal is clearly true and therefore correct.

Your statement

“If it were the case, kindly explain how shares may be "purchased and cancelled" as distinct to those " previously converted, redeemed"

This seems to indicate a confusion on your part. Those words in the July 2017 document clearly refer to the CB’s, and not shares. If you wish to make a further point about these particular words, please clarify the point you are attempting to make. Happy to respond further on receipt of clarification.

Your final paragraph is also puzzling. The sole purpose of the 52cent figure is to quantify the underlying number of new shares to be issued at maturity. I have stated that this was 442,307,692 and you appear to agree with that figure. I have never said that the CB’s have to be converted at 52cents nor have I ever used 52cents in any other calculations “meaningless” or otherwise.

Unfortunately, the remainder of this final paragraph makes no sense. Could you please re-write it so that this poorly educated illiterate can interpret what it is you are trying to say so late, for some, on a Sunday night!

Thanks

Continuation

Consequently, I would be cautious of accepting any of the attributable “no brainer” advice currently being bandied around.

In the case of Crystal Amber, from what DiveCentre attributes to them, they appear confused as to the nature of Hurricane’s capital structure - which does little for their “activist investor” credentials.

That attributable by DiveCentre to the non-executive Chairman of Hurricane is deeply concerning. If DiveCentre is correct in what he attributes then either the Chairman of Hurricane has not understood the July 2017 document, or he has knowledge that is contrary to the published information that shareholders used to vote in 2017.

If the Chairman has failed to understand the document, then this would support the expressed view on the competence of the BoD. If he has contrary information then it would appear that the BoD has mis-led investors. I am curious as to the truth!

Again, happy to be corrected, if I have got something wrong, and read any alternative coherent and resilient factual counter argument that clarifies the situation beyond doubt.

DiveCentre

The document issued on the 4 July 2017 to support the share placing and CB issue states in Para 10 Page 20, which I assume you have read and have to hand, states.

The Company will have the option to redeem all, BUT NOT SOME ONLY, of the outstanding Convertible Bonds:
• at any time on or after 14 August 2020 at par plus accrued interest if the value (calculated over a specified period) of the Ordinary Shares underlying each Convertible Bond of denomination US$200,000 shall have been at least US$300,000; and
• at any time, if 85 per cent. or more of the aggregate principal amount of the Convertible Bonds originally issued shall have been previously converted, redeemed or purchased and cancelled.

I trust this clarifies and deals with the incorrect speculative suggestion currently circulating that Hurricane can re-purchase the CB’s piece-meal. It clearly cannot!

The CA extract quoted by DiveCentre, regarding the option Hurricane has to repurchase the CB’s, actually refers to Loan Notes. These are a completely different financial animal to the CB’s issued by Hurricane. Hurricane did not have any Loan Notes in July 2017, as far as I can discover. Furthermore, the publicly available conditions attached to the issue of the CB’s does not permit Hurricane to acquire debt, which includes the issue of Loan Notes, without the consent of the CB holders. Again, there is no evidence that Loan Notes have been issued.

Now whilst it may be a “no brainer” to purchase the CB’s at a 50% discount I wonder if it would have been financially astute to have done so.

Why.

Well for the purposes of illustration let us assume that the CB were issued in US$ 100,000 quantities. That would have created 2300 individual tradeable Convertible Bonds with an underlying holding of 192,307 shares to be issued at Maturity. Additionally, each of these 2300 individual bonds would also receive an interest payment of US$ 1875 per quarter.

If someone purchased one of these CB’s at the time of CA’s quoted statement (February 2021) they would have effectively paid to receive the delivery of 192,307 newly issued Hurricane shares in July 2022 and additionally receive six quarterly interest payments of US$1875 ie US$11,250 in total.

In February the price of Hurricane shares where in the range 2.9 to 4p. It would therefore have been possible to obtain the same number of Hurricane shares as the underlying individual CB’s (192,307) for between US$ 7500 and US$ 10500.

So why pay a discount of 50% ie US$50,000 to acquire 192,307 Hurricane shares in July 2022 when the same number of shares could be purchased then for between US$7,500 and US$10,500?

Continued

Slift.

I fully understand why the number of shares that will be issued in July 2022 will be 442,307,692 and I have previously referred to this.

What I said in my latest contribution, and what seems to have confused you is “…why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.”

The reason for my statement is that I would have expected the CB holders to insist that the option of taking the cash, or shares was theirs, and theirs alone, not that of the Issuer. The CB holders in 2017 effectively gave the “whip hand” to Hurricane and thus removed the threat of Hurricanes losing its assets should they not make the required interest payments, or fulfil their obligations at maturity. All Hurricane has to do is issue the 442,307,692 shares. The CB holders have no choice but to take the shares – they cannot demand US$230 million. Well done Hurricane!

Your comment about the conversion price is correct – but it only comes into effect if Hurricane were to issue further shares or take some further measure resulting in dilution of the shares the CB holders are to receive in July 2022. It is therefore currently irrelevant.

Given the paucity of information I wonder how you managed to derive the figures you have broadcast. Do tell.

Continuation

Hurricane’s position subsequent to the 2017 placement and CB issue was surely that:

- It had to ensure that it had an income stream / capital to service the interest payments from July 2019 – the first eight quarterly interest payments having already being lodged in a US bank.

- In July 2022 it had to be prepared to increase the current number of shares issued by, a not insignificant, 18.4%. Or, alternatively not dilute shareholders and substitute a cash payment in lieu of the share issue to the CB holders.

Hurricane’s current position on the matter of the CB is that:

- In July 2022 it has to dilute a majority of a shareholders holding by a significant 18.4%. This significant dilution can be avoided by selecting the option available to Hurricane, of the cash alternative (calculated by reference to the volume weighted average price of an Ordinary Share over a specified period). Now whilst that specified period is not currently known it is not unreasonable to speculate that the calculated SP might be the current 2.5p. The required cash alternative would be c£11million or cUS$15million, which is less than the annual current interest being paid on the CB’s and well within Hurricane’s current revenue and cash.

I cannot answer for the current trading price of the CB’s. Neither can I answer as to why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.

I agree; the whole situation seems confused and illogical. I may have got this wrong! But as it stands no contributor has been able to counter my reasoning - which is based on research and the documentation provided by the company in 2017. Perhaps I am shouting that “the Emperor has no clothes,” or perhaps I am the mis-guided uneducated “fool on the hill.”

Delighted to be corrected and educated with an alternative coherent and resilient factual counter argument that clarifies the situation beyond doubt.

Research indicates that CB’s are exactly that: tradeable instruments that can be exchanged at the OPTION of the HOLDER into a predetermined number of shares. They tend to have the usual features of bonds issued by a corporation. They pay a set coupon, have a cash redemption value at maturity- if not converted or called, are debt, not equity. Being debt the holders have the right to put the issuer in default if they do not meet the obligations in the CB’s indenture.

A variation on a CB is one that is convertible at the OPTION of the ISSUER. This CB automatically converts on a specific date into a number of shares determined by a formula based on the SP at a specific date. They are treated as equity and not debt because the conversion into shares feature is certain, at the issuers option. This feature can lead to a conversion into shares worth less than the original issue price if the SP has declined. If the SP has not fallen, then the holder will receive shares worth at least the original issue SP or they may participate in a portion of the appreciation of the common stock.

In the particular case of Hurricane, the document used in 2017 to authorise the issue of the CB’s specifically states at Para 10 on page 20.

The Convertible Bonds will be issued at par and will bear interest at the rate of 7.50 per cent per annum, payable quarterly in arrears.

The Convertible Bonds will be convertible into fully paid Ordinary Shares with the initial conversion price set at US$0.52 representing a 25 per cent. premium above the Placing Price of 32 pence per Placing Share (converted into US$ at a £/US$1.30 exchange rate).

Upon conversion of the Convertible Bonds, the Company may elect to settle its obligations by way of delivery of Ordinary Shares, payment of a cash alternative amount (calculated by reference to the volume weighted average price of an Ordinary Share over a specified period) or a combination of the two.

As a result of issuing the CB Hurricane assumed the obligation to increase the number of issued shares in the Company by 442,307,692 on the 24 of July 2022. Having already increased the Company’s share capital by some 37.3% as a result of the 2017 placing at 32p the Company was effectively further enlarging this 2017 increased share capital by a further 18.4% in 2022.

Continued.

JS Thank you for your contribution.

The points that I am making is that the rate of conversion was fixed at the outset.

The higher number of shares you refer to would be on the basis that the over-allotment had been exercised. This would result in US$230 million being received and at the rate of US$0.52 the number of shares required to be issued at maturity would be 442,307,692. Once this calculation has been made the US$0.52 figure loses all relevance in the pricing of the CB.

In its simplest form the CB is an undertaking by the Company to issue a pre-determined number of shares at a future (maturity) date to the holder of the CB the holder having already paid for the shares at a fixed historical price ie the US$0.52. It has nothing to do with the prevailing SP at that future maturity date.

The benefit to the CB holder in this arrangement is that they will receive a “guaranteed dividend,” ie interest payment, on these un-issued shares whereas an ordinary shareholder would not necessarily receive any dividend on their issued shares. Indeed, I recall Hurricane stating that it did not intend to make dividend payments for some time!

It is the convertibility feature that differentiates what Hurricane has done from issuing an ordinary Bond backed by the Company’s assets. I am not aware of any documentary evidence that the CB is secured by a charge on Hurricane’s assets - a material fact that would have to have been declared before the CB issue vote by shareholders in 2017.

In this particular CB case Hurricane has the option to choose not to issue the shares, but instead repay a cash amount equal to the US$ face value of the CB, if it so wishes. I would have thought that the potential CB holder would have required that THEY had the option to choose to take the shares or cash, or combination thereof – NOT the issuer!

As it currently stands it is in every-ones interest to have a much higher SP. It is not unreasonable to assume that Hurricane will survive until July 2022 on current income flows and bank balances. In July 2022 it must either pay the CB holders US$230 million or issue them with 442,307,692shares.

What would you do as the BoD when the CB matures?

Issue the 442,307,692 shares so that the CB holders can make their choice and sell them in the market. Based on Friday’s prices they would receive c£11million (442,307,692 @ 2.5p = £11million).

Repay the CB face value amount of £168 million.

This discussion has focused solely on the CB issue. There are other matters which affects Hurricane’s SP but it is reasonable to state that the interests of CB holders are aligned with shareholders wanting a higher SP.

Is the low SP a BoD strategy to force the CB holders to agree to some particular work /finance plan?

Once again, happy to be corrected. Am I missing something! If so, what is it? Could the better informed please elucidate?

PS Johnpwh – Puzzled by your ref to a 52p SP at maturity. The reference is

Back in 2017 Hurricane raised funds by issuing both Ordinary Shares and Convertible Bonds (CB).

This CB issue is a bit of a confusing mystery to me.

My simplistic understanding of the situation is based upon the information published, and voted upon, in the “US$520 million Proposed Fundraising to Fully Finance the Lancaster Early Production System and Notice of General Meeting” document. This was issued on the 4th of July 2017. Specifically, Para 10 which begins on page 20 of the pdf document.

The value of the CB issue was US$220 million.

The maturity date for the CB is the 24th of July 2022.

On the maturity date the Company has to issue 423,076,923 Ordinary Shares in order that they be available to the Bondholders. This figure is calculated using the US$220 million CB par value and the $0.52 per share price.

Alternatively, the Company can pay back the US$220 million in cash. It can also satisfy the maturity requirements by a combination of issuing shares and returning cash. It is the Company’s choice - not the Bondholder.

Given all the angst regarding the company am I missing something! If so, what is it? Could the better informed please elucidate?

Continuing my simplistic, and possibly wrong interpretation of the issue.

The strategy for Hurricane to arrange purchase of all the CB’s, before maturity given their discounted value, doesn’t make sense.

To spend the Company’s increasing cash flow, when there is the more financially astute option to issue the required 424 million shares next year appears nonsensical. Yes, dilution would occur - by about 20% but potentially US$220 million cash would have been conserved in the process. This amount would equate to about 7p per share of the enlarged shareholding.

Once again am I missing something! If so, what is it? Could the better informed please elucidate?

Independent consultancy experience - the business succeeded by delivering what the client wanted. The “want” was not that which was expressed in any written document but that which was holistically inferred from the parties paying the fee. And this was supposedly achieved independently - without any past, current or future intent to have a financial connection with the client save for the fee!

Just saying.

Received 0400hrs this morning!

Interesting articles – remind you of anyone or thing?

Courtesy of Plan2RetireEarly’s contribution on the LSE MYSYS BB

https://www.griproom.com/fun/how-to-spot-fake-comments-on-stock-boards

and

https://www.griproom.com/fun/10-signs-your-company-is-about-to-be-acquired

Interesting articles on subjects germane to the current HUR situation.

Courtesy of Plan2RetireEarly’s contribution on the LSE MYSYS BB

https://www.griproom.com/fun/how-to-spot-fake-comments-on-stock-boards

and

https://www.griproom.com/fun/10-signs-your-company-is-about-to-be-acquired

ICL1960

"Followed by vasectomy after one baby. "

Surely you meant female sterilisation after they had one baby!

It is also April Fools Day!

The head of the Financial Reporting Council has told non-executive directors that they cannot “simply turn up” and “take your fees” amid a backlash over proposed reforms to increase their exposure to regulatory action.

Non-executive directors can’t just turn up and cash in, Sir Jon Thompson of the Financial Reporting Council warns

Sir Jon Thompson told an industry forum yesterday that he was receiving “constant feedback” on plans to increase the responsibility of non-executive directors, including one “very senior” non-executive director who said that he was not responsible for running the company.

Looks like the Hurricane BoD might have been busy - looking after their interests.

I wonder!

British electric van start-up Arrival is set to list on Thursday in a deal that will value the company at around $13bn (£9.48bn).

The Banbury-based firm, which has yet to technically sell a vehicle, will go public on the Nasdaq through a US blank cheque company called CIIG Merger Corp.

I presume that he has been able to draw his salary okay.

I'm sure the other directors will have briefed him fully on this, as a priority, when he became a member of the BoD

The “Greens” are, naturally, envious and appear to have the sole objective of driving mankind back to the stone-age! They complained about coal-fired electricity generation and now they protest about using bio-mass as a replacement fuel. Those of a certain maturity will recall the move from paper packaging to plastic – because paper packaging was using up too many trees. This “Green” thing is an easy concept for promoting group-think, excellent propaganda for the lazy media and a godsend for those charged with brain-washing our offspring.