Maurice,
Perhaps unfortunately, your rationale is the same one I used to justify buying the GX bonds.
My feeling was that even if the calculated value of the deal was pennies on the dollar, as long as I got some equity (and remained bullish on the company), I was OK. The intrinsic value of the equity appears to be much higher than its quoted pennies on the dollar as part of this deal.
The other point was that several articles mentioned that even though banks are senior to bondholders, they are secured by worthless securities. So essentially all creditors were going to go in the same pot.
But I am now much less certain that this is the case. The bank debt is still trading at just under 25 cents on the dollar as opposed to bonds that are trading at 2.25 cents or a touch higher. That's telling us something.
I think bondholders are going to have to scratch and claw to get anything from the banks. We could wind up with pennies of debt or nothing. Let's face it, the banks will probably want to maintain as much recovery value as possible. They will want the equity and cash.
Granted, I am thinking out loud because I don't know the answer. However, there is an analysis on
debttraders.com
that suggests that bondholders are in deep doodoo too.
I think we better hope for a better offer than the one on the table from the far east.
Wayne
>>$300 million cash for $12.4 bn in debt, that's 2.5c on the dollar. Plus 21% of the new company = 21% of $10 billion in assets, assuming some serious depreciation on construction costs, which is $2 billion in assets [give or take a bit]. That's 16c per dollar of debt.
Which gives 18.5c in value for current debt value of about 4c or so [depending on how the assets are valued in the new company].
If the total assets are valued at only $2 billion [I'm sure they are worth more than that given the demand for fibre communications which is developing] then there's still 5.5c in value per $ face value of debt.
Nobody can build Global Crossing's assets for $2 billion, so it's a great bargain at 6c in the dollar.<< |
