The lenders in this case could demand repayment swiftly, but will they get back everything? Possibly not. Maybe they'll do it if they reckon 50c in the dollar is a good deal. Realistically, ILF has shown it can move its unwanted crap out the door when it has to. The management need to keep cash on the books to meet debt payments, not neccessarily to pay debt off early to try chasing an elusive ever-shrinking Loan Value Ratio they are already unable to meet.
For example, if ILF had kept its $17m or whatever worth of cash on the books and met repayments from cash, it could easily address the possible demand from their lender for the debt to be paid out within 90 days. But because these numbskulls are as paranoid about their LVR as everyone selling their shares, they quickly turned that cash around and sent it off to pay out some other banker's debts.
This means that they can't react to an exploding loan book without selling fresh assets for further impairments. In fact, they probably can't do more than subsist hand-to-mouth on cash flow.
Cash flow is the only thing these REITs have now; if their bankers are idiots they'll hold them to the LVR strictly, if they are a smidge more sensible they'll sit down and restructure/work out the problems in some fashion, and keep that cash flowing to meet the interest payments, if nothing else.
Pity its not panning out this way.
I think you're also under the illusion that if the fund liquidates you'll get anything. More likely, the fund gets into strife and the banks take equity in ILF at 2.2c a share equivalent to their debt, and this means ILF ends up with 500,000 quadrillion shares and your holding is washed away. The banks now own the company, and the properties, and we just rack off mumbling about how hard done by we are.
Sorry.
ILF Price at posting:
2.2¢ Sentiment: None Disclosure: Held
