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  • vegscott vegscott Jun 21, 2011 12:34 PM Flag

    Chance of BK vs. refinancing

    I've been trading stocks of financially distressed companies since 2003. I don't recall ever seeing a company at bankruptcy risk issuing a press release that it's come to a refinancing agreement with bondholders of a majority of its senior bonds--with several conditions still to fulfill--and then failing to execute the recapitalization. Based on my experience, it seems unlikely that the recap will fail. Though terms may be revised (including possibility of lowering debt for stock conversion prices) as negotiations continue, it seems that BK is much less likely than before this agreement publicized on June 1. It's apparent by bond prices (and stock price, I guess) that creditors aren't enthusiastic about the deal, but it seems that the majority of the senior ones see it as better than bankruptcy. What does that mean for stockholders? Well, the stock has been hammered as if bankruptcy is likely. There has been no reason for the stock to drop to low $1s from >$2 in mid and late April, before the news release of the proposed recap. Though the recap will take most of the equity from the current stockholders, it would be infinitely better than bankruptcy, and when the news finally comes of the recap succeeding, the stock will pop. How high? I don't know; I was suprised that it peaked in the $1.50s last time. That might have been because the market saw all the conditions yet to be fulfilled before the recap could execute.

    Posters who apparently invest in bonds (and perhaps distressed debt) have almost all posted negatively about the stock and the proposed recap. Regardless of the possible "poor" terms of the deal, I'd like to hear opinions of what will happen here based only on the fact that they have a written agreement with most senior bondholders.I wonder if they've seen other public companies make a deal with bondholders of majority of senior bonds only to have the proposed recap fail. Please reference so that I can look into it. Thanks.

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    • so what are you saying vegas? what is your prediction for this stock in the next six months or so? would be curious.. thanks

    • Thanks for your thoughts, engineman. I want to make 2 general points for everyone:
      1. The fact that this deal has been and will be dragged out was predictable and not atypical. Just because deadline has been extended, and may be extended again, doesn't mean that deal won't get done.

      2. Stock price is not an indication of insider knowledge of an imminent event. I'll remind that stock closed ~$1 right before this preliminary refinancing agreement was announced, which shot the stock up over 50%. The stock also popped quite a bit on 4/28, after news of DOJ fine reduction.

    • Exchange offers are typically announced disclosing XX% firm support or launched without any commentary. This preamble with what they expect subject to multiple further conditions is a bit unique. Also not aware of any situation where agreement entitled Restructuring Support Agreement was entered into outside of actual or planned bankruptcy. Maybe the press release sought to layout the framework and if a further tentative definitive deal is announced that involves a pre-packaged bankruptcy, its teed-up as a technicality to take out the string. Any deal will probably be materially different from release but the company has already told you that. The interests of the bondholders are very different from current shareholders and the likely are behind most of the 6.2 million short position in the stock. Going long the bonds and short the stock is a typical hedge by distress investors.

    • 2003 i been in the stock market since 89 i have seen it all this is not a insurance company so i suggest u go else where to some other (distressed) company

      • 1 Reply to ctic33
      • I went through the jun/01 8k (see below), it gave the right to the note holder to covert their notes to new shares in 3 batches at $1.7, $2$. $2.1, this sounds like a massive dilution at a low price. at $350M, the note holder can convert to ~200M shares. this is a massive dilution to the current share holder. (currently there is only 31M share outstanding) after this finance it will become 230M-250M shares outstanding..... am I reading this corretly?

        Pursuant to the Restructuring Agreements, the New Exchange Notes will be convertible into the Common Stock of the Company at $1.70 per share, and the Company will have the right to convert the New Exchange Notes, beginning three months after the date of issuance, in increments not to exceed $50.0 million. The 30-day weighted average price of the Company's common stock must be at least $2.00 on the first conversion date. The subsequent 30-day weighted average price of the Company's common stock must be at least $2.10 on the second conversion date, $2.30 on the third conversion date, and $2.40 on the fourth and final conversion date, and each conversion date must be at least three months after the previous conversion date.
        A copy of the form of Restructuring Agreements is filed as Exhibit 10.1 to this Current Report on Form 8-K, and the information in the form of Restructuring Agreements is incorporated into this Item 1.01 by this reference.

    • Irrelveantttttttttttttttttttttttttttttt main post is irrelevant use common sense u rbuying to make money follwo the instituional order flow n make money simple as that its not that hard i made 2700 today in hrz using common sense all that jobrish is irrevlevanttttttt

    • thank you guys..good discussion..

    • The recap isn't moving because the bondholders obviously haven't agreed to fund the new $350M loan. Any exchange of their current position for some cash and new debt with a second lien would be embraced but they must be choking on putting up new money even with improved terms. Recent actual cash flow and cash flow trends and the book value of the collateral here will give any new money lender pause. Maybe the bondholders thought the possibility of an exchange would draw out other parties interested in the new loan or that the present secured lenders would step up. Maybe they also thought the stock would pop and that would draw in bondholders who weren't onboard with exchange. Whatever has happened it doesn't look like there is much forward movement on announced recap. If they do get everybody onboard with any recap, they still may implement it thru a pre-packaged bankruptcy filing which is really just an exchange offer done under court supervision. That might also allow them to surgically remove the worst performing parts of their business. But in the absence of full agreement from the bondholders and whoever will fund the other debt, a pre-packaged filing won't work and they will probably be forced into a regular filing where the existing secured lenders will call the shots.

      • 2 Replies to engine78man
      • All that jibrish is irrelveant .. Stocks move on instituional order flow given current market condition with qe2 expiring on june 30 lets a lotta instituional order flow.... There are 6.3 million short who r hoping n wishing this will go down but but u have to look at what u r investing in.....horizon shippoing usa flag ship... Ill makie it simple for u complicated clowns: usa falg ship horizon there demand if yes buy if no short.. The company isnt going anywhere this is not ambac or aig or your avbg insurance company... Its maritime vessel company.. N if any one in this board has any expr in shipping industry wil understand what i am saying.. The other write jibrish that makes no sense... Almost like main stream media calling alex jones conspiracy threorist.. common sense so once again your main is is useless get i through your head n learn how the stock market works its instituional order that move the stocks up n down not people on yahoo chat chowwwwwwwwwwwwwwww

      • Thanks for your response. I presume that you've not seen such a situation before either. I mean the announced proposed recap.

    • your topic actually is baseless. reason: in the 70's n the 80's majority of the usa flags vessel went out of business.. almost 99 percent of the maritime trades in the usa is foreign flag vessels. usa flag vessel exist due to jones act.. what is jones act .. jones act is act that states that only usa glag vessel can transport cargo from us port to us port.. example..china flag ship can bring crude from europe n discharge in new york and houston but china flag vessel cannot load in new york and discharge in houston.. there will always be high demand for maritime trasportaion from one us port to one us port since only one percent of them are usa flag...n horizon is consider pretty big shipping company when it comes to us flag.. so horizon isnt going anywehere anytime soon.. i can rest assure u that jones act isnt going anywhere anytime soonn.. i can rest assure u that maritime shipping business isnt going anywhere anytime soon as long as there is seas and ocean there will be martime vessel.. and horizon will be one of them..