AFR Street Talk article just out, page-92

Let's do some simple maths with conservative assumptions.

An interested party acquires $700m bank debt at 40 cents in dollar ($280m).

Completes debt for equity swap on $500m at 20 cents for 2,500m new shares, and keeps $200m paying 2.5 times the interest rates the banks were getting.

Total shares on issue 2,852m (352m old, 2,500m). Existing shareholders diluted to about 12%.

Now, heres the rub everyone seems to ignore, net assets go from -$125M to +$375m ($500m liability removed) after debt swapped for equity.

New asset backing on new shares is 13 cents, and cash for debt servicing reduced from $51m per year to $15m (on the remaining $200m debt).

The interest saving alone is 1.26 per share, or 6.3% return on the 20 cent share issue.

So, now we have a restructured company with reduced servicable debt and positive cashflow, with assured future.

What is the share value, merely the asset backing of 13 cents (ignoring the escrow $50m potential), or something greater given the restored band value?

Of course the newly issued shares represent an overhang and will force the shares to settle in the 20-25 cent range while the new holders liquidate realising their profits by selling into the general market to those that can run the figures and realise the long term potential of a stable S&G business.

You can play with the assumptions, and I have extensively in my spreadsheet, but however I run it, it is a good deal for someone to acquire at 40 cents in the dollar (only gets better if its cheaper).