From today's 10Q:
In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital...
On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 6.125% Senior Notes due 2024 (the "2024 Notes"). The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.
The current management team would be more than happy to keep running the company for the new owners if the new owners want to keep them on. The debt holders are going to trade in for equity it's only a matter of whether they get the whole company or just about the whole company. IE: shareholders will either be completely wiped out or just about completely wiped out when the debt gets restructured.
I finally bailed at ~$1/ share licked my wounds and moved on. Early on I was betting creditors didn't want to own the company and would re-work the covenants. Prices have been too low for too long leaving UPL too far out of compliance for a little help. I agree that valuing their assets on trough gas pricing seems unfair but it's reality. I'd make the case all parties should look at normalized prices but the smartest guys I read don't seem to know exactly what that is.
In regard to the debate about whether investors get zero or a slap on the wrist it's clear the debt holders are going to own most if not all of this company. I see one hope for shareholders in that there are two classes of debt holders, one at the parent company and one at the operating company. Operating company debt holders are senior. I'm not an expert on analyzing debt but right now debt exceeds the trough value of the assets. So it would seem Op Co debt holders will get all or near all in BK and parent company debt holders will be holding the bag. It thought for a while that if the parent company debt holders traded in their 1.3B in debt for say 70% equity (maybe an institutional shareholders takes a big stake in equity as well) they could get their debt down enough to get past this crisis and existing shareholders aren't completely wiped out. The way this is dragging out it doesn't look good and I finally just threw in the towel.
Another thought, they have some institutional shareholders that stand to lose all. They might be able to convince someone to salvage their current stake by upping the ante into a large chunk of the company to get it past this current crisis. It's not like they sell buggy whips, you should be able to make money selling natural gas.
Not a expert on debt but they made it clear just having some debt holders trade up in line isn't going to be enough. The solution will be trading debt for equity. The question is will debt holders et 100% or will current shareholders be left with anything? Debt holders certainly ain't gonna leave anything to shareholders out of the goodness of their hearts and the market is certainly betting shareholders are going to wind up with nothing.
That said I see one possibility shareholders don't lose all. There are two classes of debt holders, one at the operating company level an one at the holding company level. Apparently the operating company level debt holders will get the business in a restructuring and the holding company level debt holders will get nothing. Debt at the holding company level is $1.3B or 35% of total debt. If eliminating this debt would solve the covenant issues at the operating company level then Watford may be able to convince the holding company debt holders to trade in their debt for say 50% of equity leaving current equity holders with a lot less of the company but at least something.
Again, I ain't a debt expert and I could be missing something, but I've seen a few intelligent sources point out that the holding company debt holders will get screwed in a restructuring. If so Watford may actually have a lever to pull.
Cash flows were based on substantial hedging. They are un-hedged going forward. They're also on the verge of tripping debt covenants. They need help and it's going to come down to whether their creditors want to help them get past a disasterous warm winter or own the company.
Creditors usually just want to get paid back and are not keen on forcing BK but it's anything but a certainty they'll get help. On the last cc Watford spoke about an impending asset sale like it was all but done. I didn't see any mention of status of a potential asset sale in the press release. The press release wasn't much help, lets hope the cc is more helpful.
Animals; Sheep if I remember right. Pigs, 3 Different Kinds was a personal favorite. Will we be laughing or crying tomorrow?
They're just listing the total market for each "potential" treatment. At least under the old regime they narrowed the list down to treatments where the prognosis under traditional treatment is near certain death in months making their treatment (if it worked as promoted) the only viable option.
They also discussed specific reimbursement per treatment and had supposedly vetted this reimbursement with insurance companies. Since it was cheaper than traditional treatment it they supposedly received favorable responses from the insurance companies. Notice all of this is gone from the current investor presentation. There's a reason why they discuss vague generalities in regard to the economics of their products these days.
You also forgot to mention the biggest intentional mistake in the current presentation. The proof of concept milestone is based on a product they already walked away from. The trachea isn't even their primary target for clinical trials even though they claim to have human proof of concept for it.
Just dumped over 75% of their stake. They are a biotech focused fund with a strong track record that took part in the secondary late 2014 when HART was supposed to be in a large animal study as prerequisite to getting their trachea product into clinical trials. 6 months later when the large animal trial was supposed to be ending they pulled the rug out from under investors announcing they were starting over with a new product. Another 6 months and Prosight is bailing.
Not that I don't blame former CEO David Green for not vetting Dr. M's work before creating a company around it but at least he has a scientific background and ran a legit public company before moving down to HART. Now you have a guy who has to read from cue cards when he discusses what his company does. Add to that you went from Prosight, a NJ Pension Fund and some other legit institutional investor doing a legit secondary in 2014 to Aspire doing death spiral financing a year later.
The writing is on the wall.