TCT update as reported by Grant Robertson from Buy Low Sell High.
Cheers.
Saverio
Grant writes:
Here's an update from the company today:
Debenture Interest Payment
As many of you are aware, the company was required to make a debenture interest payment of about $280K on July 1. As per the debenture agreement, the company is not in default until July 16. It is currently late in making this debenture payment, HOWEVER, the company has indicated that the required payment WILL BE satisfied prior to the July 16th deadline. TCT has called a significant portion of the directors' loans that were provided to key directors to exercise stock options last year (remember how upset we all were about this). While the company denied any knowledge of this happenning, I am concerned that some of these directors may be selling common shares in the open market to raise the capital to repay these loans to TCT. This, in addition to the general concern regarding the interest payment, could be a factor in TCT's price weakness. A news release is expected from the company once the payment is made confirming the satisfaction of the terms of the debenture pmt.
Working Capital
TCT is nearing completion of the sale/lease back of its new facility in Prescott. This transaction will provide TCT will a major working capital boost, thereby correcting is working capital problem. While we view this as a positive move, in the long-term it has some negative implications that must be considered by investors. When the debentures ultimately mature in a few years, the company will either force conversion to common shares @$1.60, the holders will voluntarily convert @$1.60, they will re-finance the debt with the holders or other debt facility, or the company will pay cash to satisfy the debt obligation. A very large part of this cash, which I view as the most likely senerio at this time, would have to be raised by an equity offering. Investors must take into account the DILUTION that such an offering will have in the future - perhaps as much as 60% (depends on future share price). Based on today's share price, TCT is trading at about 10 times expected F1999 earnings given dilution of about 50%. Had a sale / leaseback transaction not been done at this time, it could have been done in the future to satisfy a large part of the maturing debentures, thereby acting as a safety net or slush fund, just in case sentiment in the equity markets makes financing difficult to come by in the future. In other words, the company is losing part of its safety net by enterring into a sales/leaseback transaction right now, even though it is positive that the working capital problem is being resolved. Also, the company may not be able to benefit from the potential future appreciation in the value of its real estate holdings to the same extent. Recognizing the company's strong desire to fix its working capital position, it is likely that the leasing company used all the leverage it could to get itself an attractive deal (effective interest rate) at thedetriment of the company. TCT has not released the terms of the agreement yet although it is expected to disclose them through a news release within 30 days. Some of the maturing debentures could be paid from operating cash flow although ideally most of this money should be utilized to grow the business.
SALES, etc.
the company would not provide any info pertaining to current sales, earnings or production. The F1999 audit will be released just prior to the reporting deadline imposed by the ASE - the auditors are currently working on the audit so the company will not comment until the numbers are completed. Q1 is also expected to be released just prior to the required reporting date.
Bond Issue
While not officially dead, it is unlikely to proceed.
Grant
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