senior secured 2016 and senior unsecured 2013 bonds on CEDC
Since my reply in the bondwatch posting disappeared I put it here as new posting.
Ok I think I found the reason for the discrepancy...The convertible notes due in March 2013 are senior unsecured, the $ 9,125% and Euro 8,875% notes due in 2016 [trading @around 67-69] are senior secured with several protection elements as "Negative Pledge", "Put @ 101 Change of Control", "Limit of Indebtedness", "Restricted Payments", "Restrictions on Sales of Assets". That means Tariko cannot restructure the unsecured convertibles without full consent of the senior secured note holders.
I guess the convertible note holders might have to swallow something as:
--accept a certain haircut
--accept shares instead of cash with total value well below pari
So at the moment I would feel more comfortable with the senior secured notes. They offer a nice yield and are in a strong position, since the recovery value in case of bankruptcy would be around 40-50 (according to S&P). In such case Tariko and the senior unsecured holders would loose everything, so bancruptcy should be out of question...even more out of question after the newly formed agreement between CEDC and Tariko. Jyske bank in their new study from 01/02/2013 mentioned that Tariko might try to negotiate to skip the "change of control"-§...I could live with that :-) If Jyske bank is right with this point, it might indicate that Tariko will convert into new shares at a low price which will move him above 50%.
I would not invest into the shares, at least not until knowing the agreement details including (looming) conversion price. In case it will be far below current price the shares might take another hit.
I own some Euro senior notes, but my statement should not be understood as buy recommendation!!!
I do not trade bonds unfortunately ... If I were, I would trade 2016 senior bond either :-)
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as it deals seriously with the implications of the upcoming bonds maturity. The company and Tariko already made clear that they will try to "restructure" the bonds which means the bondholders won't be paid in full in March. There are many ways for a bonds restructuring to be done:
- push out of the maturity date for an even higher coupon or the issuance of new shares
- bonds are exchanged for new bonds again with a higher coupon and some other premium attached
- bondholders will have to accept a certain haircut and take some new equity instead of cash
- bonds to be converted fully into equity (bad idea as control would move to the bondholders)
so meaningless what kind of restructuring will finally happen there's no chance this will be in any way beneficial to common shareholders
so when betting on CEDC don't use the shares as your vehicle of choice, better look at the bonds