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Otelco, Inc. Message Board

  • walk57 walk57 Feb 4, 2013 11:51 PM Flag

    Evercore's Estimate

    If you make it through the first couple hundred pages of legalese in today's OTT 8-K/A filing, you will find Evercore's opinion near the bottom. Here is what they think:

    "Based on the Financial Projections and subject to the disclaimers and the descriptions of Evercore’s methodology set forth herein, and solely for purposes of the Prepackaged Plan, Evercore estimates that the Enterprise Value of the Reorganized Company falls within a range of approximately $162 to $200 million. For purposes of this valuation, Evercore has assumed that no material changes that would affect value will occur between the date of this Disclosure Statement and the Assumed Effective Date. Based on an estimated net debt balance of approximately $130 million projected as of the Assumed Effective Date (debt of $135 million minus balance sheet cash of approximately $5 million), this implies a range of value for the New Common Stock of the Reorganized Company from approximately $33 million to $70 million. The Enterprise Value implied by the settlements and compromises embodied in the Prepackaged Plan falls within the range of the Enterprise Value determined by Evercore. These values do not give effect to the potentially dilutive impact of any New Common Stock, warrants or options that may be granted under the Management Equity Plan."

    Based on todays OTT closing price Wall Street has a different opinion. The Market has awarded OTT a market cap of just over $22M.

    To get to the BOTTOM of Evercore's estimated range of stock value for the reorganized OTT, the IDS units would have to trade at $2.50/unit. At $5.25/unit OTT would be at the top of Evercore's estimated value.

    The future will tell who is right....I have a pretty good idea.

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    • Thanks for pointing that out walk57.

      The valuation on the pre-pack looks ok at the current price but this is just a bad business to be in. Traditional phone lines and internet. That's sure to decline as more folks give up their landlines.

      I think I would need to get this down around the one dollar level to interest me.

      • 1 Reply to sheetwise
      • That's the question sheetwise. Alot of things to consider here, even though if things go as planned its appears (at least to me) OTT is undervalued at current quotes.

        I'm far from an expert on charting (maybe someone can help here) but it appears that OTT's 50 DMA which was resistance before the restructuring announcement is now providing support. At least for now.

        The future growth prospects of OTT's business that you mentioned have been well documented here. That is well known. Other factors, such at how much benefit OTT's new capital structure has on the business, is less clear. I think its very important, and isn't reflected yet in the IDS unit price. Also, OTT's drastically lower leverage ratio after restructuring may make it more interesting to a competitor at some point in a consolidating industry.

    • Has anybody figured out a conservative pro-forma outstanding share count? Dilution from management plans, bachelor sub, equity for deferrred interest, and equity bank sweeteners - it adds up. Low end fair value seems close to current price, and fair value does not necessarily translate to stock trading prices.

      Wireline business = melting ice cube. Do they own anything else of value? Cloud business or data centers ala Cincinatti Bell?

    • Thanks for your calculations and for pointing out the Valuation Analysis near the end of the 8K. I missed it because the 8K is so long and poorly organized. While Evercore estimates the low value after reorganization to be $2.50 per share, our interest will be diluted by 7.5% after new stock is issued to the senior lenders, reducing the current low value to $2.31 and the high to $4.90. Additional dilution of up to 10% under the Management Equity Plan, which has not yet been released, could reduce the low value to $2.08. Still, with an estimated range of 2.08 to 4.90, we should move up from here if anyone is paying attention.

      • 2 Replies to lineupsinglefile
      • I looked at the Investor Presentation again and noticed that the IDS unit holders will receive stock equal to only 85.2% of equity after the reorg. Bachelor bondholders will receive the other 7.3% to make up the total of 92.5%. The wording of the 8K is tricky in stating that subordinated lenders will get 92.5% of the new stock, because IDS holders do not constitute all of the subordinated lenders. So, it appears our interest will be reduced by 14.8%, reducing the current low value to 2.13 and the high to 4.52. Assuming a maximum of 10% additional dilution under the Management Equity Plan, the current price range would be reduced to 1.88 to 3.99. Still, the bottom of that range is 27% higher than the current price of 1.48.

      • Nobody is paying attention IMO.

        While Evercore's analysis & estimates do not account for the points you make, they also do not take into consideration another very important point.

        Evercore's analysis DOES NOT factor the deferred interest nor the interest on the deferred interest that continues to pile up as long as the IDS units are in circulation. The meter is running, and will continue to run until OTT kills them. The absolute earliest OTT can kill the note is March 16th, because of the time OTT allowed for IDS holders to vote on the plan.

        By the time OTT gets around to retiring the IDS notes at the end of March, they will owe about $0.72/note to the IDS holders ($0.243 per quarter times 3 quarters). That doesn't take into account the interest on the deferred interest so this is conservative. Yes, this will be paid in equity, but it is substantial.

        Anyone selling an OTT IDS note now is doing so for a highly discounted sum of its face value and is forfeiting AT LEAST $0.72/note in value!

        Hello? Anybody get this?


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