A chapter 11 allows customers to leave immediately. The solution for the lenders is to restructure out of chapter 11, let the company operate and then sell it down the road. Of course there is nothing for shareholders if the lenders foreclose but that wS true 6 months ago as well. Delisting is irrelevant at this point.
Again I doubt there is a chapter 11 bc customers will then have an out and the lenders lose big. This is not the type of company to liquidate. It has to operate out of this for now. AAFES will be a key.
Not a sexy stock, but seems nicely attractive here given the guidance and relatively low share count. No balance sheet issues. Seems like the broader market just oversold it and now it is rebounding. Hopefully a move into the mid teens is forthcoming. Guidance certainly supports it.
Spdc is not going BK. They will restructure the debt to get in compliance with listing and provide for financial flexibility. This assumes the clients stay with SPDC but my guess is that will occur. Then it will be sold later in 2016. The company will not be sold before aafes gets the go ahead to expand its website to all military vets. That alone is worth tens of millions.
A BK means clients flee. Value plummets as contracts are really the value. Not hard assets. Lenders know this better than all. You don't file BK if you can cash flow but for your interest rate. There are ways to deal with it.
Just think it through. Every contract of significance has an out for a bankruptcy of a party. I am sure the AADES, Yankee Candle, etc. contracts have similar language.. People here think the banks just walk in and take over. NO!!!!! The moment the banks look to foreclose, SPDC files for Chapter 11 and it stays all. Meanwhile clients will flee and bring the value of SPDC to next to nothing. Any restructuring has to be handled out of court and in discussions with major clients. The banks could convert a good portion of debt for pennies on the dollar and reap a 100% or more gain when a restructured SPDC sells itself later in 2016. Their debt gets repaid and they make significant gains on equity. Even common shareholders benefit from retaining some value. Just think it through.
How do the lenders benefit from SPDC going BK? SPDC's clients would flee thereby causing the lenders to lose their shirts on any sale.
The light just went on with the conversion of the preferred D holders to common.
Once again, if the lenders wanted this sold they would have done so already. Now they will lose their shirts if it is sold in current condition. Nope. Restructure the debt, convert to equity a decent portion, lower the interest rate and let the company build itself a bit in order to be sold down the road for a far greater multiple. The return of debt plus the return on the equity conversion would allow the banks to come out far ahead than at present.
Not such a bad idea for the banks....they are in it to make money. Convert a portion to equity and watch their investment grow.
The departure of execs, conversion of preferred and forbearance agreement all fit. maybe i am wrong, but it sure makes sense. SPDC can't file BK as their client contracts would likely have an escape for their clients. Stay out of BK and their clients will stay if they see a plan. Notice the statement in the last PR about providing the same excellent service for clients? The lenders can't afford to see SPDC go bankrupt. The conversion also solves the Nasdaq issue as to delisting over the shareholders equity.
Now it fits guys. At least I believe it does. How do the lenders benefit from a BK? They get killed!!
The banks do not want this company as what are they going to do with it without experienced senior execs? So they will not foreclose. However, they may very well be willing to convert some of the debt to equity, thereby eliminating delisting, strengthening the balance sheet, cutting the interest rate on remaining debt and then participate with the other equity holders in the eventual sale down the road after AAFES gets the go ahead on a major expansion and the company is ready for a sale. It is a win win for them. They don't take a write down on the debt. Could easily make multiples on the debt conversion once the shares are sold in a sale transaction, far exceeding what they could hope to realize in a forced sale.
The key is this company has value. But for the debt and high interest payments, it is viable and valuable to the right suitor. The lenders can make money as equity holders as well as debt holders.
All assume the preferred D holders sold. Maybe yes, but maybe no. Perhaps this is all the plan so that the debt holders can come in as preferred shareholders. As long as the common shareholders have some value, then any suits would be mitigated.
This is not far fetched. The lenders are wed $110MM plus interest. Foreclose and they may very well get less than $110MM and certainly no interest. Convert a portion to equity and it immediately restores the capital structure of SPDC while lowering the debt service. Existing common doesn't care as something is better than nothing even if vastly diluted.
Ask yourself this. Who runs the company is the lenders take over and clients flee? What is the company then worth? The lenders lose their shirts. The value of SPDC is in its client base. The lenders could convert to equity and immediately stave off client defection and actually give SPDC some ability to grow. AAFES alone is worth tens of millions once expanded. Willis, Tuttle and the COO had to be cleaned out. They failed.
I expected it. No formal amendment is required. This simply buys time to find a buyer or otherwise restructure. The lenders do not want the company. The key is the wording used in the PR by the new interim CEO. Of course he has full knowledge of the current financial situation. Yet he is telling the public equity markets that he company is operating and serving its customers and its financial situation will be improving for stakeholders. He singled out the lenders especially, but not exclusively. This is all legal analysis by me in my opinion of course. If he knew equity holders were going to get wiped out then he could not make the statements made today. My guess is operations are doing better and it seems AAFES is doing much better. Remember the expansion of that contract alone is worth tens of millions in my opinion and that is a 2016 event.
Clear that the lenders are now working together with the company and there is value. Very difficult from a legal perspective to do what has been done today and to make the statements in the PR if there is knowledge the equity holders will get wiped out.
remember you just don't turn the company over to the lenders. it is a covenant that they first must declare a default on and then attempt to exercise their remedies. The company would then file for reorganization protection where all interest and principal is stayed, while the company seeks a buyer to pay off the lenders. All the while the AAFES situation begins to play out, thereby increasing value. It gets very messy in reorganization when you have a company that can operate with cash flow. This is why the lenders are playing ball. They are far better off having spdc improve its operations and get a sale price that comfortably exceeds their debt. Plus keep in mind that the lenders make very little money if all they get paidf back is principal and the accrued interest. Also the threat of litigation over a forced sale from lenders is also very likely for a company that seemingly has its worst days behind it. There are a host of legal reasons to keep spdc going as a public equity unless a "fair" price can be achieved in a sale. But a fair price must take into account future prospects and the savings from no longer being a publicly traded company. Otherwise the lawsuits will line up with a forced sale.
The significant client is Justice as same language is used in the 6 month numbers.
There is also a covenant that October financials be delivered by 12/11.
Covenants are waived as we see many times. Anything can happen but I don't see a sale by 12/11 if ops are improving.
I was just being overly conservative. What isn't in the numbers at all is the expansion of aafes et al to all vets later in 2016 (assumption)
Company could be sold by 12/11 but I am skeptical, especially if the company looks like it performed well through Black Friday and cyber Monday spurts. The 8k just filed increased the protective advances to $10mm. I find little reason to believe the lenders force the hand of spdc. They are workjng together.
Believe it or not your post is one of the most important here because it goes to valuation. The performance last year was atrocious on these sites and this year appears to be markedly better. You are correct that success during this season likely brings the sites opening up to all vets in 2016. The military contracts alone are worth a multiple of the current price.
The other pits that hit on the point here was the debt. The debt level is not a huge issue. The 12% interest rate is the issue. A better capitalized acquiror with a cost of capital far lower reaps significant benefits from spdc. Remember the public reporting expenses go away as well plus redundant salaries and operating expenses. If spdc can show it is now operating fine with aafes and other sites then the price will be a multiple in excess of current prices.
A BK reorganization here will bring lawsuits. A buy out for .30 or more likely avoids any suits.
The key was the day after earnings. The price did not drop much immediately. That told me the people in the know were not dumping the shares. The buyout likely will be in excess of .25 and probably appreciably more if the performance of the company holds up through this early season blitz.
there is little new here is correct. the loss is largely due to the goodwill impairment. if you look at the components of working capital, then you will see there is still adequate liquidity going into the strongest quarter. the lender is keeping the pressure on to sell the company, but it also has a date that it will be well known how the business is doing during this holiday season. there is still time here. any selloff will be scooped yup by buyers. again, there is value here. not a $1's worth, but value.