order of business. That mistake alone is enough to question our new controlling shareholder, but I am sticking...
I will nominate this management as the most dedicated and competent in the media industry. They have threaded the needle, and brought the company to the point where long term survival, if not raging success, is guaranteed (with continued blocking & tackling). While there may not be any more fast money in this stock, you would have a hard time finding a better long term investment, I think.
There does appear to be some risk in the way this is structured, but the risk is limited, as you point out. And it wouldn't be fair to pull out one aspect of the deal and say "why didn't you get a better deal on this aspect" when it is all part of the overall package. Again, I think the extension to 2022 is the key headline, and they did what they had to do on the warrants to get that long of an extension (with a small reduction in interest rate to boot). If they stay on their current trajectory, they will have no problem refinancing what little debt remains in 2022, and the warrants will be a relatively meaningless footnote at that point.
The lenders are accepting market price for the warrants, currently around $4. The company is capping it at $4.19. That sounds like a fair compromise. The extension to 2022 is what will allow this company to become a "normal" stock over the next several years, as long as they keep executing.
It's a shame about the warrants, but I am sure they got the best deal they could. The debt markets must still be very risk averse. On the positive side, extension to 2022 is huge, which will probably allow a better 1st lien refinancing than they otherwise would have gotten, and they save an extra $5 million/yr in interest expense starting in a couple months. The other positive is that the warrants are not at a discount to the current market price. Getting lenders to accept $4 warrants was a wild pipe dream just a couple of years ago.
I am definitely not an expert on what rates they can achieve, but I would think that $10 million per year savings (at current debt levels) should be achievable. The credit markets being as fickle as they are is the reason that I don't expect the company to hold off on refinancing for purposes of saving a couple million bucks (assuming they have a good refinancing deal ready to go).
I forget where I read it, but I have read things that led me to believe that the holders of the first lien debt also hold the second lien debt, so the first lien-holders' interest in preventing the second lien debt from being repaid before the first lien debt is in earning those high returns on that second lien debt. Has anybody else gotten that impression?
The phrase " Terms of the 1st Lien Agreement also restrict principal payments under the 2nd Lien Agreement." makes me wonder whether Lee can refinance the 2nd lien loan without prior/simulatneious refinancing of the first lien loan. To date, Lee has applied principal repayments to the 1st lien loan and to the Pulitzer debt. The 2nd lien loan has remained at $175 million, in spite of the fact that debt carries by far the highest interest rate. This leads me to believe that there are terms in the first lien agreement that prevent paying off/down the 2nd lien loan. I expect this is e reason why the s-3 is for the full amount needed to refinance 1st and 2nd lien debt, and, really, refinancing the 1st lien debt is top priority anyway given its earlier maturity, so doing them both simultaneously would make sense. I doubt they would wait for Jan 30th if they have a good deal lined up--extending maturities and lowering interest on that 2nd lien loan is 1st, 2nd 3rd and 4th etc. priorty for this company, and paying a couple million extra to lock that in should not even be a consideration...I think.
I have always thought that huge swath of 2.5 Ghz would make a great low-cost competitor to wireline--T's cash cow (I expect). In any event, it's definitely fun to ride along with someone who goes full out to achieve success!
But I guess I was wrong. Looks like somebody wants in.
You don't need inside information to know that if the next earnings report shows continued movement toward stabilization in revenues that the true value of this stock will start to be revealed.
The hint of an improving revenue trend. That is what we need to begin the process of refinancing on better terms...which will lead to lower interest costs...which will lead to faster debt repayment... Not out of the woods yet, but the market likes this report and so do I!
As found in the earnings release:
"...cycling of interest rate changes"?
It seems to imply a reduction in interest rates on the debt coming this summer (in the absence of a LIBOR increase). Has anyone seen reference to this provision in previously released documents? I haven't seen it, but then I have not dug into SEC-filed documents. Anyone able to quantify the change in rates? It certainly sounds interesting.
Self interest. The liquidation value of this company at that time was less than the discounted present value of the income stream from interest payments at (10 and 15%) plus the present value of the retained option to liquidate the company when those high-interest bonds come due again. Bondholders would have definitely lost money if they had forced liquidation at that time, which is evident from the incredible value that this company's share price represents ASIDE FROM the amount of debt that it carries. Retaining present management was the most assured way to provide those rich interest payments while preserving the liquidation value of the company, and present management (thankfully, and unusually for today's business world) stood up for equity holders and convinced bondholders of that value proposition. At least that is all I can figure--I don't think that bondholders were "being nice." That is the reason Mary Junck deservedly got a bonus from equityholders for her work on this. It was an amazing job, and I expect this would make an interesting business school case study.