Bankruptcy scenario
mad snooker, could you spell out your case for a planned bankruptcy? Here is some of the background:
1. Financially the company is way underwater. As of the last 10K in September, MCLL had long-term debts of some $786M. They're paying an incredible 19.5% interest on most of it - as risky as credit card loans - that's fixed charges of around $177M. They have a huge working capital deficit. Net operating loss for the whole of 1999 should be around $173M. (The CEO, meanwhile, takes home a $1M paycheck; the two next in line are also extravagantly overpaid.)
2. The joint venture may be financially protected from MCLL's red ink. You write, "it looks like the new venture is bankruptcy remote from MCLL."
What is your source for this?
3. MCLL may be planning bankruptcy. You suggest, "this is all pre-bankruptcy planning, MCLL is on the road to chapter 11." "Before the recent hype started, their secured debt was priced at 60. While that's not indicative that chapter 11 is a certainty, it certainly indicates that chapter 11 is a very good possibility." "Best thing for MCLL is to file, shed some of that debt, and start fresh."
What do you see as the new investors' role in this?
4. The new investors may have gotten floorless convertibles.The press release from 2/9/00 says, "the investors will buy an aggregate total of $30 million worth Series A convertible preferred stock in the venture." Given MCLL's precarious finances, negative book value, and long history of losses, it would not be unreasonable if the terms were floorless.
If it's a floorless, and Inciscent is bankruptcy remote from MCLL, the new investors got full control of MCLL with a tiny investment. In your words, "Outside investors buy MCLL stock for $30m, then MCLL puts $15m of that cash into new venture, leaving them with $15m cash and an interest in new venture." They can short MCLL into the ground and not lose Inciscent.
The question is, if you are right about this being pre-bankruptcy planning, what terms can we expect for the convertibles?
Kailash |
