This makes no sense to me. If you believe in the fundamentals of the company, just buy equity on market now ..?
Keith, at the moment Anchorage are a secured creditor, which is desirable given the state of the company's finances. If the company folds they have a priority claim on the company's assets ahead of common shareholders (us). Not that I'd be finding much comfort in liquidating WIP, for example, but there is probably enough value there for it to at least be repaid its 36c investment. Whilst being de-risked as a secured creditor they can also potentially pick up an equity-like return (2.6x) simply by holding the debt to its maturity and getting repaid in full.
They can't force a debt-for-equity swap prior to maturity of debt unless S&G were to breach specific covenants that have been set as part of the amended SFA. I imagine in this scenario the company would have some scope to negotiate terms.
If S&G were unable to repay the debt, it would be at this point that Anchorage could be flexible and negotiate a debt-for-equity swap. The company would be forced to accept the terms as it's otherwise in default, and common shareholders wouldn't get a say.
So Anchorage are in a good situation. They can earn some potentially great returns for less risk than simply buying equity on market.
SGH Price at posting:
31.5¢ Sentiment: Hold Disclosure: Held
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