How's this for a ballpark estimate of what the current common might be worth? (Note to those who are interested - I've done this from start to finish without backtracking and re-doing my assumptions).
Let's say they generate $US100-200M of cash flow per year. Assigning a realistic/generous multiple of 7X-10X to this cash flow means that the whole enterprise is worth say $700-$2000M. As a reference points, there is about $2200M of senior debt outstanding. This means that existing senior debt is covered by (ballpark) 30 to 90 cents of enterprise value. And FWIW, the Series 5 bonds (whose "secured status" is not in doubt like that of a number of the US dollar series) are quoted recently at 54 (I own this).
This value will be divided up amongst the various groups (secured creditors, unsecured creditors, PATS, MIPS, preferred and common stock). Let's say all of these are entirely converted into new equity.
If the existing common holders get 5%-10%, then they'll be receiving between 5% of $700M and 10% of $2000M of value -- $35-$200M. Dividing this amongst 78M shares gives a value of 50 cents to $2.50 per share (they trade at about 63 cents Canadian, which is about 45 cents US).
Right or wrong, for whatever it's worth, it looks like Mr. Market is figuring that the low end of my SWAG range is about right.
And FWIW as a bondholder (and former shorter of the stock), I really don't think the existing common holders should receive so much value. As a matter of fact I don't think they should get a single cent, unless and until all other claimants ahead of them are fully satisfied (which is virtually impossible, IMO). But, as you mention, existing common holders are usually given some small token -- I'd just estimate that an amount significantly smaller than 5-10% of the new equity would be a fair deal.
If they issue 100M new shares (worth $7-$20 each -- enterprise is worth $700M-$2B), I'd say that something along the lines of one or two new shares for every 100 old shares (about 0.8% - 1.6% of the new equity) plus some way-out-of-the-money warrants to purchase new shares would probably be about right. Of course this might just be me trying to rationalize my belief that the common stock is worthless... ;-)
Comments?
- Daniel |
