Oh I'd be blowing smoke if I said I understood how it would work in bankruptcy. They are both guaranteed by the subsidiaries and "permitted liens" on assets.
I've played with the numbers and I have to be pretty aggressive to get the first and second lien debt paid off. 1st lien will even have to take haircuts in my opinion if it comes down to liquidation. If they reorganize the 2nd lien holders might get some recoveries but I'd guess not.
Valuing those Appalachian assets is tough.
So I think it goes without saying that the unsecured bonds are wiped out at this point in time.
I'm guessing the value of the mines is roughly five times trailing EBITDA? Works out to around $1.5 billion. Seem about right?
Interesting on bk filing. Have not seen that.
Can't say you are wrong on the going concern. Just an issue of probabilities but to date they have had reasonably good luck managing liquidity.
I've never heard of a creditor forcing bankruptcy unless there is a covenant violation or non-payment. The preference issue is sometimes a problem but I don't think they are at risk of bankruptcy unless a liability pops up out of the woodwork as the preference rules in bankruptcy are not that tough. Guess I'm saying I think the December coupon gets paid, maybe not until January. I also think they get a clean audit opinion for year ending in December.
Just not seeing the disaster quite yet. Close but still a little ways out.
So do they make it to 2018? That is the big question. Bond prices say there is a high probability they won't make it to January 16, 2016.
Agree that it is unlikely they pay. One has to ask why wouldn't they pay the December coupon? They do have the cash and there are no failed covenants are there?
So the reason I can think of is that the BOD looks at things and says we are insolvent as of today and it is a matter of treating creditors fairly. For example, the pension plan is a creditor, if we send money to creditors we aren't treating them fairly.
Basically, I'm stumped as to why a company with cash would file bankruptcy unless they have liabilities coming out of the woodwork such as what ANR experienced in Wyoming.
You have to consider that a buyer is paying accrued interest in addition to the price reflected in sale which effectively increases the price paid by quite a bit (wouldn't apply to ANR bonds) so the difference is more than a penny or two.
Buyers certainly are acknowledging the risk of not getting the next coupon or merely consider it part of the purchase price of the underlying bond rather than interest they will get back in a few months.
One of the things that is kind of interesting is how accrued interest is added to the price when closing on a purchase. I'm not sure what that adds to the 4.5 cents but it is a very material amount.
The bonds are trading at a very low rate indicating extremely bankruptcy risk but they are quite a bit higher than the ANR bonds when you factor in interest.
Do you know what kind of security qualified bond holders were getting? Would they in effect be tossed in with the 2nd lien holders?
Also, the PR said non-qualified investors should contact ACI for terms of swap for them. I have no idea what the terms were from a security point or cash payout point of view.
I can think of aquite a number of possibilities.
1) Exchange debt for lower face amount and extend as coal companies are doing. No way bond holders would agree as I can't see a way they move up in terms of security.
2) Exchange debt for equity. Sure this is what management wants. Would trigger a change in control and management bonuses. This is the reason I was concerned about the change in control provision that was recently implemented. I'd expect them to get most of the company if they did this now because of the low stock price and fact that I think they are pretty confident of getting a couple of years coupons even at current AL prices. Those coupons are pretty valuable.
3) Draw down revolver and tender for bonds with cash or more likely present unsecureds with a choice of say cash of 20 cents on dollar or equity worth 40% of face and 10 cents for total comp of 50 cents. Obviously an infinite number of possibilities and how do you define value of shares?
The big problem is who owns the bonds and would many refuse the deal? If a significant number did refuse I can't think of a hammer. The point is that you can't have more than a few refuse. Also, it likely triggers a default so you have to have agreement from everyone that it is o.k.
If they had a new revolving credit facility in place with more generous terms I think they could pull an exchange but it is still tough to do. I think they will try to do something but more likely it fails because unsecureds probably like the scenario where the coupon gets paid until it can no longer be paid.
Just some quick thoughts. Something has to be coming in terms of an offer for the unsecured notes but no sure idea of what terms will be or whether they can succeed. Hope the above is coherent.
It simply makes too much sense to convert the 11% notes to equity (at a discount to face) rather than go bankruptcy and bring in new private equity investors. Bk not impossible, just unlikely.
Think you are likely right on this. Shorts were in the money and Alcoa seemed to say no one has any idea where aluminum prices are going but China and inflated inventory levels seemed to be taken off the table in terms of downward pressure. Shorts took a few dollars off the table.
Would say that pretty much sums it up. AA was essentially at zero EBITDA in primary aluminum so Noranda will certainly be well below that. All told I'd still guess $20-$30 million burn assuming they can manage working capital well. Will also trigger the $25 million reduction in LOC.
Don't get what is going on with CENX today. Guess AA comments on demand and Chinese exports were viewed positively.
They purchased from Apollo at well over $14 a share and resold to their clients (see prospectus filed 5/13/2015). Then they were hired to advise on restructuring alternatives shortly thereafter.
Would be pretty surprising if they held a material number of shares. No regulatory filings indicate that they do.
No one said the bonds wouldn't go to zero or be converted to equity at some point in time.
It is worth something unless they are about to declare bankruptcy and while there are always possibilities of that happening, the most likely is that for some reason the line of credit gets pulled. If that does not happen and say they go two years while paying coupon you get 22 cents. At 25 cents it was pretty close to a no-brainer provided you don't bet the farm.
Obviously, shares are even more risky and are a total bet on recovery in aluminum prices or perhaps if things go really well, alumina or rolling mills being sold at a higher price than I would expect. Unlikely but it could happen.
BOD authorization still exists but I'm pretty sure they have not been buying shares. In 2nd Q they purchased 1.2 million shares for $16.9 million (over $14 a share) so it seems pretty apparent they stopped not too far into the 2nd quarter.