Hi judge, welcome to Loewen!
Why would First Union loan 200 million to a dying company?
Uhhh, because it is debtor-in-possession financing, senior to all other debts and shareholders claims? Since Loewen has plenty of assets and this loan is being made as part of their Chapter 11 bankruptcy protection and reorganization, it is a safe loan for them to make since they are able to jump in front of the claims of shareholders and creditors.
They will probably be able to avoid selling the company at firesale prices - however this does not mean that bondholders will recover 100% of the face value of their bonds. And if bondholders don't get essentially 100%, then it is probably safe to estimate that preferred shareholders and common shareholders will get essentially nothing.
Go to yahoo.. CFO bought 50,000 shares at .50 in June.. I don't think I cfo would throw money into a dying stock.
Perhaps the CFO thinks buying shares at 50 cents is a good investment. One might also consider the absolute amount of money involved here, $25,000, is small enough that one also ought to consider if it could be a case of "window dressing". Keep in mind too that Ontario Teachers sold their entire ~6M share stake at about 50 cents. Personally, I wouldn't read too much into other people's buying and selling, it can be distracting... ;-)
the insider buying and the loan from first union are a strong case that this stock may turnaround.. I just started following this stock as of today.. I bought in at 1 1/16 and 1 1/8..
I think the company has a very good chance of surviving, and the $200M DIP loan certainly confirms this, however I still cannot see how shareholders are likely to realize any value at all. Do realize that they are in a Chapter 11 bankruptcy reorganization because they are in such desperate, desperate financial shape that they probably could not have met an interest payment in June, and that the interests of shareholders are the very last in line, after bondholders and other creditors are either made whole or divvy up ownership of the company amongst themselves.
I still hold the Loewen bonds I bought (they are now quoted at 62 FWIW, indicating that the market still has less than 100% confidence in the likelihood of receiving 100 cents on the dollar) because I think that there is more value to be realized yet for the bondholders. I also remain short my initial modest amount of common stock because I also think that there will be zero value left for the common. With this recent price increase I am analyzing how much more common stock I should short and at what price (my initial position was shorted at $3C).
- Daniel |
