Ann: MSB and Oaktree Conclude Refinancing of Senior Debt Facility, page-145

Mesoblast could have raised capital, but it would have been highly dilutionary at these prices... if one investor out of the US can come up with US$100m at $2+ .. then there are plenty more who would be more than happy to do a cap raise at these price levels. I think Silviu prefers non-insto investors to avoid giving them a chance to cover the shorts... but if no large non-insto investors are found, then you'll see MSB doing an insto placement, and if really desperate they'll do a retail offer as well. That to me would be really scraping the bottom of the barrel stuff.

So while the 8.848m shares at a 15% or so premium seems a little unfair to everyone else... from a shareholder base perspective, that is a very small potential dilutionary impact at a premium.. as opposed to raising at a discount approx US$100m or say approx 70m shares at these levels. Debt is temporary, equity is forever (unless they do a buy back of course).

So taking debt is in a strange way Mesoblast telling us that they are still confident that things will turn in the short term... the cost itself will be negligible if they are right, and we get upfront cash.. partners and a product on market.. that is their intention and I believe they are very close to achieving these.

If they were not so confident, and wanted to make sure their business survived another 5-10 years without revenues... then they probably would have just raised capital and cleansed their Balance Sheet of debt... that way, they will not be held ransom by covenants.. they can take as long as they want, so long as the equity markets provide capital.

At the end of the day, debt is good not matter its cost.. so long as you can pay it back. Equity dilutes shareholder wealth in the long term, but provides more flexibility and breathing space. Mesoblast are trying to keep the dilution at these levels as low as possible... with so many potential near term partnerships and product approvals, they may well be in a position to repay the debt in 3 years time in full and not refinance.. or refinance on much better terms, given they'll be in a much better position.


goodluck