On the face of it, this arrangement sounds very dodgy and I, too, am pretty annoyed, but more so at the lack of transparency of the arrangement; the announcement provided no details to us so that we can evaluate if this is fair.
But I do want point out two things:
1) We had to expect that the noteholders were going to get a huge slice of the pie. We were told in the Market Update on 12Nov, 2020 that they were going to seek approval to give the noteholders an additional 14.548B shares, giving SDL a total of 23.998B shares. If this had gone through, the noteholders would have over half the shares and would now be lining up for over half the payout. The question now, is “Is this new deal they’vestruck better or worse for us than them gaining 14.5B shares and having walkedaway with over half the payout?”
2) People are saying that if we win a payout, thenoteholders are “going to get it all”. This depends on the amount of thepayout. Let me explain…
SDL is seeking 8.76B in compensation. If we win the case, there is no guarantee that the compensation amount will be 8.76B. For example, they may only decide to compensate us the amount that we sunk into the project instead – call it $500m (I have no idea what it is). First the litigation funding component is paid out (let’s call it $50). We have $450m left. Then, we take out part 2 of the new agreement (repayment of the redemption amounts owing under the Convertible Notes). We know that noteholders are owed $132m. So, we are now left with $318m. Then we take out the noteholders’” compensation for their forbearance”, which is a percentage. The way I understand the announcement, it could be a tiered system (just like our tax rates are tiered depending on what you earn). In this case, I expect noteholder will get a larger percentage for smaller amounts and as the payout increases, the noteholders’ rate drops and SDL get more. In my example here, let’s say that they have a system like this:0 - 1B Noteholders’ Rate = 40%
1B- 3B Noteholders’ Rate = 30%
3B- 5B Noteholders’ Rate = 20%
5B-7B Noteholders’ Rate = 10%
7B-10B Noteholders’ Rate = 5%
So, with the remaining $318m, noteholders get 40%, which is $127.2m, leaving SDL with $190.8
If the payout is $182m, then:- $50m to litigation funding and $132m to noteholders (part 2 payment)
- SDL gets nothing.
If the payout is 8.76B, then:- $50m to litigation funding and $132m to noteholders (part 2 payment)
- Noteholders part 1 payment is calculated as such:
o 40% x (1B-50m-132M) = 327.2m
o 30% x 2B =600M
o 20% x 2B = 400M
o 10% x 2B = 200M
o 5% x 1.76B = 88M
Total (part 1) = 1.65B- SDL is left with 6.68B
Of course, this is just an example to demonstrate how it might work (clearly the percentages are wrong - so please don't start). Like I said, what are the details of the arrangement and what percentage do the noteholders walk away with.
Why won’t SDL tell us?
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- Senior Management Still Determined on Sucking this Dry
Senior Management Still Determined on Sucking this Dry, page-4
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