I already know about the lower guidance. This stock, like so many, is price for the worst case. Whether people want or can accept it, the world is not coming to an end.
As I state earlier, earnings and management comments should give insight as to whether the sell of is over done or justified.
The reason for the refinancing is that these are short term facilities. Most of these lines are backed by A/R or some other form of collateral. The increase of 80 basis points is a result of the tighter credit market and the increased debt load the company carries.
CEDC made over $600 million in acquisitions in 08'. A portion of the acquisitions were done by stock offering. I am sure that we all wish that more stock had been issued because the debt load would be even lower right now.
Currently CEDC has more than adequate cash flows to handle this debt load. Keep in mind that this refinancing allows the company to pay the $221 million of long term debt due this year. In 2010 CEDC has no long term debt due and only $40 million in 2011. CEDC has no significant debt due until 2012. In 2012 they have 250 million euros due. The company is generating significant earnings to digest these acquisitions by the time any significant amount of debt is due.
Their debt to equity ratio was running at about 60% as of the Sept quarter. That's hardly excessive and in fact low for an alcohol distributor.
I understand the 50-60% drop because of the Zloty. The other 30% seems to be panic/capitulation.
"What was the purpose of the refinancing in the first place? At 80bps higher, that is a pretty large added interest expense."
I'm fairly new to this company, so I would be very interested in that answer myself. I don't know if they started out with a big debt load, or they acquired it by trying to grow too fast. This type of business is probably very expensive to start up, or expand. Alcohol is probably frowned upon by most Governments, so they stick it to the sellers (money wise) anyway they can. The buyers don't fair much better.
I'm not sure if most of the debt came when they expanded into Russia, or if they have always carried a large debt load.
I believe, the reason Management needed the money was to payoff a Short Term loan due in March. From what I've learned so far, that was the main reason the PPS started dropping. Now with the loan problem taken care of, we have the lousy economy and Zloty too continue the decline.
<word on the street is CEDC is facing liquidity issues>
Last quarter, interest expense was $12M, while net income (which *includes* interest expense) was $47M. See:
So there is simply no way this is true unless their business rolled over and died in one quarter, which seems very unlikely given that they confirmed guidance just recently.