Skeeter, I was talking about EBITDA - the best measure of underlying cash economics of a business, typically used to arrive at "enterprise value" (including debt). If the enterprise value exceeds the payoff value of debt, then there is value for shareholders.
That said, I agree that interest expense (as well as scheduled principal payments) must be considered. If the company can't cover these, then it will default on it's debt and, in all likelihood, the shareholders are out of luck.
For the record, I predicted on this thread back when AMZN issued its first big chunk of debt ($1.25 billion some time in '98, I think) that the debt holders would eventually own all of AMZN. Glenn may recall that. If I recall correctly, principal starts coming due in 2003, right?
Anyway, even if the underlying economics (cash generating capacity) of the business are not attractive enough to justify even a fraction of the current stock valuation, the notes could still be a good investment. Any idea if they trade?
Bob |
