Razorbak,
Thanks for posting the meat of the 8-K filing.
While the financing was pretty much what I had expected (more of the same), there are a few observations I would like to make. First, the warrants equal further dilution. Second, the company's ability to purchase these notes is a little troubling. First, we can only purchase $5 mil of the $10 mil. The offering specifically states that the mortgage will not be lifted from the refinery until the note is down to $3 mil. That leaves a difference of $2 mil, which stands in the way of conventional financing since I don't see how a conventional lender will lend without being first in line.
The option to convert is in the hands of the lender. With the exception of the $5 mil, we cannot deter further dilution, even if we wanted to. I do not understand that covenant. Why could we not have negotiated full repurchase based on the same conditions, which by the way penalize the company if the company's stock does well.
That's the negative view. The more positive view is that it does give the company time and money when the refinery is entering its seasonal sweet spot. PR contact Mike Dodge said that the refinery should do $25 million this year, and possibly $40 million, if the company secures the necessary barges and tanks. With this money, they may do just that. Grabbing that extra $15 million in revenue could add another $5 to $6 million to the bottom line, money enough to pay off the first $5 mil. With only $2 million between it and conventional financing, it is possible that a conventional lender will still lend, since the refinery's value as an operating asset will have increased sufficiently to make room for another mortgager. Just an observation.
I would still feel more comfortable with a better exit strategy from this kind of financing, but you got to do what you got to do to make money.
Dan Dwyer |
