From the ALD conf call transcript:
[Jeff Lignalli – Stonebrook Funds]
I know you haven't provided details on the restructuring, but just generically speaking, I'm just curious what's the philosophy of the restructuring? Are all these notes going to be reset at a coupon that would basically make them trade at par in this market environment or are the maturities being shortened or being lengthened? Just generically speaking, what's everyone trying to accomplish? And also, the investors in the private notes, do they want their money back sooner rather than later or would they just prefer to have a market priced instrument that they can hold in their portfolios going forward?
As we tried to say at the beginning of this, we can't give you all those details now. We'd be happy to give you all the details when we can announce the terms of the restructure. For us, the major things that we're trying to accomplish was achieve some flexibility in the financial covenants so that we can continue to operate."
"Are all these notes going to be reset at a coupon that would basically make them trade at par in this market environment"...?
That would be difficult for AFC, right?
I havent been on this board for a while and I just caught up with this discussion and I think ALD gave a pretty clear indication of where this restructuring is going without giving the details.
On the conference call they said that the deal is agreed but not papered and they would announce when it is papered, which could take some time to get all the signatures of all the parties.
They also said it was going to be very expensive for ALD and that they would not be paying a common dividend for an "extended period of time".
Now putting one and one together, having followed ALD for some time, I conclude the following:
1. No BK. That doesnt make any sense to any party. By the way, restructuring is a generic term and doesnt equate to BK. It can be as simple as a change in covenants in exchange for a higher interest rate, which is where I think they are going.
2. Back in December they announced a restructuring agreement and then backed out in January. That agreement would have given the banks a security interest in the portfolio companies. If I were ALD I would try to avoid giving them that.
3. A higher interest rate on the loans would damage profitability and therefore they would not necessarily violate the BDC rules on dividend payout because there would be little or no taxable profit. I would not see a common dividend until 2011.
4. I believe, and I am not a lawyer either but I took a company through a chapter 11 a decade ago, that they can agree with the banks to modify their loan terms and not do anything to the public notes. They are curing an event of default with the private holders, and they are not IN an event of default with the public notes.
5. All of that works out fine for everyone except the common shareholders, who are in for a long slog.
It depends on what you increase the interest rate to. I think most of these banks would be happy to get the interest rate up to a rate in line with the market. I'm hoping we are talking about increasing rates 1 - 2%. 2% would be a big move. Part of the lending problem is that banks have rates tied to libor and libor is so low that interet rates are in the 1-2% range. There is not enough there to cover operations of the lender. I follow several RITS. HRP is one. If you look at their financial information they have variable rate loans tied to LIBOR that are in the 1.5% range. I'm sure the lender would love to renegotiate those terms. Remember if ALD said the interest rate is going up and it will impact profitability but it is no big deal the bank might ask for more. Of course they could really try for big number and if they do hopefully ALD would have provisions that allow them to prepay.
I doubt a prepack. That would put the banks level with the public debt. You can't hand someone a security interest in assets and then file right away. There is a time frame when the court would undo the trnsaction. I imagine they get a credit line in exchange for security in the assets and the company is allowed to start growing again. Remember they are holding a lot of cash to pay to the banks. The payment will likely get them in compliance and then they get a secured line of credit.