Member Info for HeadInTheSand

Brad you are partially right - hardware in orbit and orbital slot (a combination of geostationary orbital position and allocated frequency band) are indeed separate assets.

However both need depreciating. The first because a satellite has a finite working life, the second because the orbital slot is held on a finite lease, before such needs to be renewed or ceded.

Sure. It's a given - and hopefully everyone already understands - that D&A only affects PBT and not cash.

Okay let's work on your EBI metric, Dan. It'd only take say a 5-10% upswing on revenues and say a 5-10% reduction in costs to get AVN to an EBI neutral position. As I said, that's not beyond the bounds of possibility.

But honestly, what's the big deal about a positive EBI for AVN? Yes it's a step in the right direction, but - as MTB has properly re-emphasised - there is a simply MASSIVE shortfall in terms of AVN's earnings covering off interest due on financing. Without knowing in detail how much of its costs are fixed vs variable, I'd estimate that AVN's turnover would need to roughly treble from current levels in order for it to be able to cover off interest from earnings (let alone to start paying down principals).

Until that point AVN really is going to continue to bleed real cash.

AIMO.

Not entirely Dan, no. Depreciation (and impairment) is presumably much less of long-term issue on H1 and H2 and presumably more of a longer-term issue on H4 (and shortly H3 too).

However, I would absolutely agree with your implied comment that it's interest charges and the costs of debt financing that remain hugely more significant to AVN's future commercial health. That's a millstone that the company needs to shuck off or repay ASAFP - and it has pretty much always been thus..

I'd completely agree with you, Dougal.

Similarly, if anyone subscribed for the pre IPO shy of 2 years post delist, on the say so of a CEO who's provably had repeated problems with factual accuracy on pretty much everything he's ever said re the company, I'd say they need to book in for intensive and long-term psychological help.

Although it's a small improvement from a revenue increase POV, that's not the way I read that RNS, I'm afraid.

The audited calendar year 2018 financials will be interesting to see later next month..

My own back of a fag packet calculations suggest that AVN is currently running at an annualised revenue rate of around $60m. Its annualised costs according to my guesstimate are running at higher than that maybe by $10 to $15m. So I'm expecting a negative EBITDA of around say $15m when those financials get released (ignoring any extraordinary one-offs).

Now it's not beyond the bounds of possibility that such a negative EBITDA could get turned around quite quickly - combine some more (finally sensibly targeted) sales efforts with some internal cost-cutting measures and one can see why the AVN BoD is predicting a "positive EBITDA from the bandwidth business in 2019". I don't think that's unrealistic particularly.

Having said that, the two mahoosive elephants in the room remain Interest and Depreciation & Amortization (so, the I and DA in in "Earnings Before ITDA" - AVN's never made a profit, so doesn't have to worry about Taxation at least). Anyhow...

Debt financing costs are not entirely clear after recent shenanigans one way and another (D4E and then subsequent further boirrowing), but I reckon they must now be running at shall we say $70m per annum? And depreciation/amortization of assets would seem to be running at around $35m? Perhaps we should generously round the two negatives up to a total of say $100m?.

So unless there is a simply massive sea change for AVN, my own purely personal guess is that it's set to continue to lose around $100m per annum from a pre-tax profit/loss point of view for the foreseeable future (or at least for as long as it's continuing to be bankrolled).

There's not a huge amount of encouragement in becoming EBITDA neutral or even positive this year if to do so has required funding that's costing say $70m in annual interest that the company's not earning anywhere near enough to pay, let alone start paying off the principal.

AIMO - I wonder how close I'll be when the 2018 audited financials are released and any extraordinary one-offs (e.g Indonesia) are discounted?

.. , that a certain LSE BB ID who:-

1) signed up just as the Aug "amazing pre-IPO opportunity" was being touted about

2) has solely posted ever since - and invariably massively supportively - on CTAG and no other share since

3) has claimed that CTAG will definitely come good by end Sept this year latest

...has deleted his LSE ID and thus all his posts have been wiped too.

One does idly speculate why? Job done, perhaps?

Brad, the alleged Inmarsat £1.40 per share offer (which was very quickly recanted back i the day) has precisely no relevance today.

Why? Because there are around 13 times more shares in play today, following the D4E swap. So that £1.40 offer, if it was ever in the least bit serious (which I personally doubt, given it was trumpeted by AVN and almost immediately disowned by Inmarsat), would equate pari passu today to 10p per share.

Which would still make realistic AVN shareholders' eyes light up with relief and have them hurtling for the exit door, I reckon.

Unfortunately there's two hopes of that level of SP being reached IMO, namely Bob Hope and No Hope.

"So to buy AVN at the current sp would cost about £450 million. I would think that’s cheap considering it’s cost about £1.2 billion to get everything in place."

A couple of things. Agreed that the M Cap plus the debt does seem to total around that figure, with the debt making up 90%+ of that. You can't factor in any P/E ratio, because AVN has steadfastly failed to make any profits.

As to whether that £450m / $570m represents good value as a take-over target? It depends (obviously) on how any potential acquirer values AVN's assets. Such a party would need to weigh up 1) whether such assets were put in place cost-effectively (and thus properly valued) in the first instance, 2) whether such assets deliver originally expected levels of return and 3) whether the value of such assets have been properly and realistically depreciated (where relevant) over their lifetime. All such considerations (and much more) would directly apply to how AVN might be valued as an acquisition target.

DanSteely...

"I will never understand why certain individuals (and you know who you are) are relentless in their doom and gloom predictions."

Seriously? You honestly don't understand why? Here's a clue as to why some are less than positive on AVN...

It's called "being led to one's oiinions by evaluating irrefutable historical evidence and indisputable public domain fundamentals."

It's AVN that has been "at it for years" in terms of showing no signs of ever becoming cash positive, let alone generating a positive EBITDA, further let alone generating enough margin to cover off interest payments due on various borrowings, and even further let alone generating enough margin to also start paying off any part of the principal of such borrowings.

I grant you, this situation may change some day - stranger things have allegedly happened.

. But until there are some demonstrable and hard-evidenced signs of this happening, the numerous justifications for more negatively slanted opinions on AVN should be literally blindingly obvious to all but the most swivel-eyed of foaming at the mouth zealots. I mean just look at the trends of the company's SP and the resultant market cap over the last 5 years, FFS?

AIMO.

It will indeed.

Hard to predict, based on today's RNS. Bandwidth revenues for calendar 2018 remain nowhere near where they need to be at only $32 million. The dramatically increased revenue forecasts for both 2019 and 2020 can be seen as notably positive or wildly ambitious, depending on one's viewpoint.

The new $55m borrowing facility will no doubt be very welcome, though at a 12.5% annual interest, it's clearly subject to a hefty risk weighting from those prepared to advance funds.

As to positive EBITDA by end 2019? Maybe, but the key metric (and the far more important one) will remain the EBITDA to interest coverage ratio.

OPB I agree that is one perfectly feasible explanation for the bondholders' agreeing to last year's D4E swap - there are as I am sure you're aware one or two other feasible explanations as well.

What is true without doubt is that - an as much as anyone is sitting pretty on AVN - the bondholders are sitting prettiest (or at least, least ugly) of all.

The remaining $500m of bonds (plus any further promissory notes that may now get issued, following recent consents) puts those note holders right at the head of the share-out queue in the event of the worst happening and there needing to be an asset fire sale.

And the selfsame parties - as 92.5% owners of AVN - are also obviously entitled to the lion's share of any payable dividends, should AVN ever get itself into a position where it manages to start generating profits.

All of which isn't the greatest news for mere PIs, but still...

OPB, I do take the point.

Having said that, it was quite an expensive way (at least so far) for the former bondholders to acquire 92.5% of AVN. From memory, they exchanged $500m of interest-bearing debt for shares that are currently worth only $41m or thereabouts. By my reckoning, at today's realisable SP at least, that's a 92% loss. Ouch.

Well, I say "former" bondholders - of course there was still around $450m of bond-based debt kicking around even after the D4E swap and it's still in play.

But as you imply, it must largely be the same bunch of institutions and fund managers who now seem prepared to increase lending to AVN once again, regardless of their reasons for doing so.

Although I can't easily see the rationale in fund managers et al. giving the green light to consent for AVN to acquire more funding (and debt) by the issue of new bonds, it is indeed true that one feasible take on this is that said fund managers may believe that this time AVN can get itself out of the woods.

Which would obviously be a positive sign.

Though one can't help but raise a somewhat surprised eyebrow at the desperate divesting of bond-based debt a year ago, to be followed now by the acquisition of more bond-based debt.

Dan, again, who's promoting failure or wishing doom? People are merely commenting on the realities of the situation - and cold hard fundamentals entirely support a less than positive view, IMO.

I'd have thought that it's a great deal more perverse, uncivil and ignoble to continually fly in the face of those fundamentals and to keep assuring everyone that it's an amazing time to buy a share like AVN right now. Some on this BB have been doing exactly that continually over the last several years - and if anyone had been foolish enough to act upon their recommendations, they'd be carrying up to a 99% loss.

You're confusing realists with gloaters.

Tyche, get a grip man.

Nobody's willing AVN to go bust. People are simply commenting on the perceivable and evidenced state of play and not on any desired outcome.

Re British Steel and state aid (which is what it undoubtedly needs), I wonder if that will have any effect on Thursday's vote? The EU is very stickler-ish in terms of what state aid it permits its member states to hand out on a local basis...

That's a good question Matt and one I've raised before.

I still don't understand how AVN managed to get sufficient consent to increase borrowing (and payable interest) yet again via yet more bonds/promissory notes. It almost drowned last year under incurred debt and only escaped by the skin of its teeth by begging the then bondholders to partake in the massively dilutative D4E swap... which then promptly cost bondholders around 85%+ of the value of the loans they'd made and then transferred into equity.

Again as you point out, why would any institution agree to enabling such a cycle of woe again? Nothing about this company makes sense...

I must admit that I'm going to need to sit down some time in a quiet dark room and try to work out exactly what AVN's bond-based and interest-bearing debt will amount to after this latest bout of refinancing shenanigans - which a cynic might justifiably call re-arranging the deckchairs on the Titanic.

Briangal, I agree that the ability to get this through can be seen in one light as positive - though with AVN one always has to ask, what would have occurred if the existing promissory note holders had with-held their consent? I imagine the wheels would have fallen off the bus very quickly and that would have been worse for those having advanced funding.

MTB is of course right - the only thing that actually matters is the ability to generate enough profits at least to cover off all operating costs and all interest due on debt of any type - let alone having enough left over to start paying down the principal.

Sadly, to date, AVN has never got anywhere near this - in fact over recent years, even its revenues (let alone its GP) have been less than the interest due on its borrowings in the same period.

We'll just have to wait and see - but there's a good reason they're called "fundamentals"...

Heh.

Well Brad, those with a cynical view on AVN might well point out that PIs who've continued to plough funds into this ever-falling share have indeed consented to being vigorously and repeatedly shafted...

Guess we'll just have to wait and see. I'm still curious about the reasons behind AVN plumping for more bonds/promissory notes as a fund-raising vehicle (consent permitting). As I said earlier, superficially it's a counter-intuitive move, given that just as year ago, AVN was so desperate to divest itself of as many bond-based interest-bearing millstones as possible - simply because it was being dragged under?

Asking existing bondholders if they consent to more funding being raised (and more debt/interest payments being incurred) by another issue of bonds/promissory notes.

GCCRa, you are clearly as clueless about individuals as you are about pickign good stocks to invest in. Anyhow...

This latest attempt to drum up company-preserving funding is an interesting one - and superficially nonsensical. Let's not forget, just a year ago AVN was so drowning in debt and interest payments against such that the then bondholders had little choice apart from accepting a chunky $500m D4E swap - which, once done, promptly cost said bondholders about 85%+ of their loaned capital and equally promptly diluted existing shareholders by an eye-watering factor of 15.

And yet here comes AVN again looking to raise more funding (and incur more interest-bearing debt) against a new issue of bonds...

That's counter-intuitive and IMV is a sign of one of two diametrically opposed things. Either AVN is (as per usual) on its last breath and is having to try even the seemingly absurd to scrabble together more funds - or the new BoD has enough of a story now and a testably realistic prediction of calmer waters somewhere ahead to be able to convince presumably already extremely wary bond purchasers, who are likely to be very mindful of the old "once bitten, twice shy" adage, looking at last year's massively costly D4E swap. I doubt they too want to take another 80%+ bath... we'll just have to see.

Of course, if AVN does successfully secure more bond-based funding to keep the lights on a while longer, it's probably better for existing PIs than yet more dilution with a placing. However, it's worth noting that any raising via bonds would (again)push existing shareholders further to the back of the queue, should an eventual distressed asset sale ever need to take place.

AIMO.