Jon:
<There are actually two "juicy" angles on how wonderful it is to extinguish debt (that is re-purchased for less than 100 cents on the dollar) :
1. The corporation gets to stop paying the interest payments.
2. The corporation has completed what I call a "P & S" (purchase and sale) successfully. They sold the bonds at (roughly) 100 cents on the dollar, and re-purchased then at 11 or 12 cents on the dollar. This is REAL money, not some wacko accounting trick. (It is so real, that taxes are due, I believe).>
First of all, as you pointed out there is no way that a interested/or disinterested party is going to be able to buy enough of the bonds without someone taking notice, an SEC filing, etc.., So let's say L/Q were able to purchase 15% of the debt before it became public information.. Big deal.. Now instead of interest payment of 700K a day.. You only have interest payments of 600K a day.. Big deal!! Given G*'s quarterly operational revenue!! Plus the fact that you have now taken cash that can be used to hire direct sales people, tv/print ads out of the "cash till".. I just think it's a bad idea!
Note: in a recent Quarterly CC FY Q2/00, a fund manager for SSB questioned BLS why LORAL would not start re-purchasing LORAL equity since it was trading at "distressed levels"? BLS replied that if extra cash was available, then that would be an option, but, continued in saying that he felt that Loral, The Corporation's" investment plans would provide a much better return on investment than simply re-purchasing the common stock.. But later , BLS decided that LORAL stock was a pretty good investment into his personal portfolio.. Which is another issue investors should think about!!
In addition if GLP, or one of it's General Partners (aka QCOM/LOR) started buying the Debt.. Then the entire facade of the "Mr. Bondholder...This thing is worthless" is gone.. And the bondholders know that the partners exposure is even larger than before!! I don't think this is BLS's plan... If BLS can pull off the the equity for interest deal.. Then he get's 2 years of "runway" for GLP. His monthly cash interest payments go to zero versus simply reducing them by 10 or 15 percent.
Buying some fractional amount of the debt makes no sense at this juncture! It reduces liquidity for corporate funding requirements..
If you were personally facing bankruptcy and you had the choice between working with your creditors which would result no "interest payments on your debt of 2 years", or the choice of you taking some of your remaining "cash on hand" and buy 10% or your debt, for a dime on the dollar.. But, still required you to continue the interest payments on the other 90%.. And you could not do both!
Which would you chose?
I bet the 2 year no interest deal.!!
I have my own designs on how this well whole thing will take place.. And believe it or not! BLS will end up being the bondholders "best friend" in this process!!
In the end GLP could end up with a total renegotiation of the bonds.. Maturity date, Interest rate, and a period of time with no interest payments in lieu of equity..
And if it comes to pass.. The investor that calls it correctly, has the ability to make a rate of return similar to the QCOM 1999 run.. Probably better!!
Sure there is some amount of risk... But, it is pretty minimal!
PCSTEL |
