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Otelco, Inc. Message Board

  • amateur_everything amateur_everything Feb 1, 2013 6:00 PM Flag

    Lampshade, where are your thoughts?

    Sure would be appreciated.

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    • I have to hand it to Walk, he called this one regarding the cash payment to the banks to buy time. The banks were more forgiving than I assumed only taking 7.5% of the equity. Management will get another 10% so the dilituion did occur but much less than I anticipated. ;l

      As predicted, they did file Chapter 11 as this was the only way to wipe out the debt tax free and convert the debt to equity as you assumed AE...so good thought on your part.

      The covenants are set very tight but if OTT can hit their EBITDA number early and make a real dent in the senior debt over the next two years, there may be a chance for some additional appreciation but it will be limited. The tight covenants will provide little margin for error in year 1 so that is the bet. Can they get through year 1???

      The business is a melting ice cube as reflected in the declining revenues in the forecast. The big question is the rate of decline and can OTT hang on to their remaining CLEC customers as per the forecast. If you are up 20%, I suggest you take some off the table and let the rest ride. If this breaks $2, I would sell all shares as higher bank interest rate and debt amort will minimize any return to shareholders outside of price appreciation.

      If you hang on to your shares, monitor the covenants every quarter and be sure to understand the EBITDA cushion between covenants and reported numbers. Also note that this debt will be at a variable rate and I doubt any of the banks will provide capacity for an interest rate swap so if interest rates spike, the company will be in another pickle. Watch short term rates and sell if they increase beyond the LIBOR floor.

      Good luck AE. I am still on the sidelines watching the show.

      Come on Walk...I know you are dying to stock it to me...so have at it.

      • 2 Replies to lampshademan100
      • Lamp,

        Contrary to what you may think, you do a great service to this board by being a "voice of uncertainty" with strong rational thoughts to back up your opinions. Notice I never bother to respond to the "short this POS to zero" crowd?

        I may have called the cash payment to the banks, but if you'll recall, I said $20M. I was wrong in that I fully expected OTT to use some of the cash on hand to pay the two quarters deferred interest to the IDS holders. They could have. They should have. I am not happy about that. Haven't some investors here suffered enough over the past year? It would have been the right thing to do to pay the deferred interest, THEN announce what the IDS holders share of the new equity was. That said, the extra $7M going to the banks could keep relations warm & fuzzy with those kind & thoughtful people for awhile:)

        Saw your earlier post. I'm not as worried about the regulators as you are. I think the pre-pack will go smoothly. Voting "no" on the plan wouldn't be productive IMO. It's going to happen anyway as the Senior Lenders are in charge. We will not see that cash. And I agree with the Company that its best for the IDS holders to vote yes.

        The one thing that we were always in agreement on was OTT had to kill the note. Had OTT not had this weird capital structure they wouldn't have been in this spot in the first place. Regardless of the TW loss and the government actions that hurt profits. The IDS structure is now officially dead in America:)

        It's in OTT's best interest IMO to be very conservative with projections supplied to the banks to get this done. It makes no sense to have gone through this time consuming and expensive process only to fall on your face and trigger a covenant soonafter.

        If anything, OTT provides great entertainment value. Never a dull moment:)

      • The deal will go through whether we vote yes or no, as made clear in the 8K. We will be out the interest either way. The reason to vote yes is that creditors will be paid, ensuring their continued good relations with the company. The reorganization is designed to ensure the viability of the company and I don't see any other alternative. Vote yes.

 

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