Recent rally sure is not indicative of a company ready to enter bankruptcy. I have a feeling that this rally has to do with some inside knowledge that DEXO and SPMD will get 100% creditor agreement and very soon.
Think about it. The remaining creditors, if only a small group, have nothing to gain by forcing DEXO and SPMD to file a pre-packaged bankruptcy because they will unlike get enough in return to make up for the costs involved. These are costs to the creditors paying their attorneys and the costs to DEXO and SPMD in bankruptcy court. Even if those creditors got 20% dilution distributed throughout all creditors, that would not amount to much based on equity valuation. With DEXO and SPMD market value at 150mm, that would mean 30mm going to the creditors. However, if you are a creditor owning 300mm of the 3+b in debt, that means you only gained 3mm (10% of the 30mm) and you may have ended up spending close to that just fighting in court. Plus, DEXO and SPMD would have lost value spending what surely would amount to tens of millions in bankruptcy expenses. Just not worth it.
Maybe, just maybe, creditors are all starting to see the light. The steering committee probably improved creditor terms enough to get this amendment through and get this merger on the fast track to shareholder approval.
fwiw, i've made a lot of money on dexo this year, and i want to keep it that way. the price is too high for what i see right now. i've been right about the direction of this company since they emerged from bankruptcy. in fact, i've been right since about 2005 when they were rhd. i may be wrong now, we'll see.
There is a deadline for the amendments to be presented to creditors by 11:59 PM on December 16, which is this coming Sunday. This run-up is likely related to that in 1 of 2 ways....
1. The amendments have already been presented and the runup is related to insider knowledge of pending creditor approval.
2. The amendments may or may not have been presented, and the run up is solely due to the pending deadline and anticipation of good news.
FWIW, I may be wrong, but I doubt 100% creditor approval is coming, so I doubt it's #1. But, I could be wrong. There's just too much out there for me to believe they'll get 100% creditor approval. First, and I think Rusty got this from me, because I've been saying it for a while now...but, the creditors likely have financial instruments that would create a situation where it would be more favorable for them if the company enters bankrupty. Second, bankruptcy isn't imminent in the next year, so why the rush, and therefore, what's the motivation for the creditor to accept a deal right now? Finally, and to me, this is most important...even 100% creditor approval does not bring either company out of the woods on their debt situation. The Lender Presentation given last week contains pro forma's showing what how the debt will be paid down and what will be left at the end of 2016. Between SPMD and Dex, there will still be $1.8 Billion of debt outstanding and due at the end of 2016...so, they'll still be in a similar predicament for the next 4 years. In other words, at the end of 2016, they'll either have to fight for a refi (which they may or may not be able to get), fight for amendments, or pursue some form of bankruptcy, likely a pre-pack or standard ch 11. These are the main points that still make me scratch my head and think there are better options for dealing with the situation. As I've said before, I see mid - high probability for price appreciation following the merger. But, because there will still be a requirement to further resolve the debt before the end of 2016, I see the price being suppressed for a while longer, and I do believe any large run ups that occur between now and merger completion will reverse to a certain extent. Having said all of that, I'm assuming continued overall economic growth. Any significant downturn in the overall economy will not be pleasant for either company individually or merged.
You are assuming a significantly less leveraged co. with (hopefully) stable revenues won't be able to access the credit markets. I say they can issue high yield paper and payoff term loans. No bankruptcy needed.
"The Lender Presentation given last week contains pro forma's showing what how the debt will be paid down and what will be left at the end of 2016. Between SPMD and Dex, there will still be $1.8 Billion of debt outstanding and due at the end of 2016...so, they'll still be in a similar predicament for the next 4 years."
this lender presentation can be found by...
go to sec dot gov
search for company filings
search by ticker for dexo
you will see a list of all of their filings. look for the 8-k filed on december 6. click on "documents". this will take you to a list of all documents filed in that submission. look at item 5....lender presentation.
the debt of $1.8 billion left at the end of 2016 can be found in the pro forma's on page 40 of that presentation. look at the "debt, ending" line. $794M for SPMD and $1011 for Dex at the end of 2016.
the lender presentation can also be found on dexs website if you go to the investor relations section and pull up the 8k filed on december 6. it is at the bottom of that document. same thing...page 40 of the lender presentation.
"I do believe any large run ups that occur between now and merger completion will reverse to a certain extent."
i wanted to clarify this statement...i believe those gains will reverse following the merger as the reality sets in that the debt situation is far from over.
Actually King, it is just the opposite. Many hedges are likely swaps. That benefit only kicks in if they declare. They are looking to make money on the hedge, not the reorg/dilution side of things. In many cases, they can make much more if they go bankrupt than not. I can tell you that those at the co I've spoken with are certainly not optimistic they can get 100%. I think the hurdle is just way too high. Anything can happen, but BK is still a much more likely scenario than not.
Just my curiosity: what would a BK court say to those bondholders (if there are any) that are betting against the survival of the company ? I mean... if I (bondholder) am betting that the company will go bust and stand to gain from this surely a BK judge would view this negatively and hold this against the bondholder? NO ? If I were a judge I would tend to think this is immoral to say the least ..especially considering that the new plan increases chances of recovery , does not demand reduction of principal, and increases the interest rates !!!
In any case The only party that really needs a haircut is the first BK court. The shareholders that came out of that reorganization didn't have a chance and were doomed from day one !!