Paul, BK does not necessarily mean wiping out the pre-BK shareholders, but it would likely mean diluting the hell out of us. Covad did a prepackaged bankruptcy last year, wiping out $1.4 billion of debt (substantially all their debt) in exchange for 15% of the equity at a time when they had been burning $300-400 million per quarter and had a quarter or so of cash left. Of course, they didn't have to restate five quarters of earnings at the time they were negotiating, but still...
Hell, I'd take much greater dilution just to wipe out half the debt, but then it isn't up to us.
BTW, I still say the banks are better off striking a deal that avoids BK, but the problem is individual banks have to act together in the best interest of the entire group and I'm not certain that can happen. Any participant bank with a small exposure relative to their total assets could just decide to take their $10 or $25 million loss and be done with it, which would then require one of the lead banks to take up the slack, increasing their exposure. Even with a stronger collateral position (secured vs. unsecured now), it's a tough sale to the credit committee.
Regards,
Bob
PS: I used to be a banker and even worked on syndicated lines for two companies that are now part of WCOM. |
