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Ultrapetrol (Bahamas) Ltd. Message Board

  • bonkthegrups bonkthegrups Nov 26, 2012 12:20 PM Flag

    Next Shoe To Drop: Negotiating with Convert Holders + paying off 2014 notes

    I just read through the company's 20-F.

    You will recall Southern Cross is demanding that convertible note holders waive their repurchase rights. Here is the exact language applicable to the converts:

    "Upon a fundamental change occurring, as defined in the Convertible Notes Indenture, each holder of the Convertible Notes, shall have the right to require the Company to repurchase the Convertible Notes in cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date."

    It seems that the holders of converts, who are seeing their bonds trade in the mid-60 cents on the dollar range, have a ton of leverage right now. ULTR can now go and beg them to waive these conditions.

    What do you think they will demand in return for giving up their right to have the ocmpany buy back their bonds for 100% of par when they are trading at 65% of par?

    Whose pocket do you think any concessions will come out of? Not the guys that just cut a side deal for themselves directly with Southern Cross. Not out of Southern Cross's new 80% stake.

    IMHO it can only come out of the scraps of ownership you've been left with in the company. Note these converts are face value of $80 million trading around $52M at current prices. That's more than the whole market cap of ULTR right now. If I owned those converts I would dig in my heels and demand big concessions.

    Also note regarding the 2014 (non-convert) notes:

    "If we suffer a change of control, we will be required to make an offer to repurchase the 2014 Notes at a price of 101% of their principal amount plus accrued and unpaid interest within a period of 30 to 60 days."

    That's $181.8 million that must be paid off. The whole Southern Cross deal is $220M.

    So it seems that what's happened is:

    Money comes in and dilutes bags by 80%
    Most of the new money goes to pay off debt that didn't mature until 2014 (but IMHO the company has a cash squeeze so had to take it)
    Convert holders now have a massive hammer to demand concessions
    Management / Major holders have protected themselves with a lucrative side deal directly with Southern Cross


    Sentiment: Strong Sell

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    • Fk you and your stupid shoe dikhead.

      Sentiment: Strong Buy

    • Hey Bonk, is that you buying up all this wortheless stock? If your common sense rivaled your pseudo accounting skills you would be rich!

    • Looks like I nailed this one, yes?

      Sentiment: Strong Sell

    • Obviously you haven't done ALL your HW. On the Q3 earnings call ULTR said there won't be a change of control as far as the 2014 notes are concerned. Also - the converts do not have very much leverage. Unless they can get someone else to pony up that kinda cash they will go for this deal - otherwise they will be left with nothing. If case you haven't noticed, this company almost ran out of cash recently. In fact, if they hadn't sold the barges this year and advanced most of the cash, they would be out of money. This $220M is the only thing that can save ULTR. Every stakeholder should be for it at this point if you consider the alternative.

      • 1 Reply to dabreeze21
      • " Obviously you haven't done ALL your HW. On the Q3 earnings call ULTR said there won't be a change of control as far as the 2014 notes are concerned."

        I see that but the note holders may take a different position based on the Indenture. The ability to appoint a majority of the directors is only one of the Change of Control Tests. I read this one as potientially applying:

        " (iv) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company (determined on a consolidated basis) to another Person other than (A) a transaction in which the survivor or transferee is a Person that is controlled by the Permitted Holders or (B) a transaction following which (1) in the case of a merger or consolidation transaction, holders of securities that represented 100% of the Voting Stock of the Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and (2) in the case of a sale of assets transaction, each transferee becomes an obligor in respect of the Notes and a Subsidiary of the transferor of such assets. "

        Given this fund is buying 80% of the equity it's possible noteholders could take the position that it represents a merger or consolidation. E.g. if Wal-Mart buys 80% of a target company most would consider it a consolidation / acquisition / merger. I wouldn't be surprised if noteholders balk.

        "Also - the converts do not have very much leverage. Unless they can get someone else to pony up that kinda cash they will go for this deal - otherwise they will be left with nothing."

        Don't be so sure. For one they could be short the stock in a convertible arbitrage strategy. Also as a debt instrument they rank ahead of the equity so may get some proceeds in a liquidaiton. From public filings it looks like the hedge fund Citadel Advisors is the biggest holder of the converts. Citadel is a $100 Billion hedge fund - one of the biggest. Citadel was also a holder of the common stock but sold out 100% in Q3. Don't underestimate them. IMHO the Southern Cross guys or management won't care if they get held for ransom by the converts as they can just extract value from the bags holding the other 20% of the stock.

        We will see.

        Sentiment: Strong Sell

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