Why was it unreasonable for noteholders to have a contingency plan in place?
We are talking about a company that has demonstrated an inability to meet not just
interest payments over a prolonged period of time, but didn't even make the required payment for the relatively small waiver fee (US$1.6m) that was due in the June Quarter. Understandable given the COH at the end of the period in the 5b.
What was shocking was that this was a quarter where ~31% more product was shipped than produced. 46316wmt produced, 60950wmt shipped.
That doesn't include the quantity that departed at the beginning of July for which the letter of credit was mentioned in the report.
That early July shipment was reported as approx 11500wmt for which the LC was AU$5.7m. This equates to ~AU$495wmt (fx on July 1st was approx 0.69 resulting in ~US$342wmt and assuming a moisture rate of 6% is ~US$356dmt [it is uncertain as to whether that was a CIF or FOB payment]).
The March Qtrly referred to a LC of AU$8.5m for 11836dmt (~AU$716dmt or ~US$438dmt at a fx of 0.61).
Yet some still maintain they were never informed pricing was below the contractual floors of US$550dmt FOB.
We do not know the full details of the current fight for the asset.
Some questions that come to mind are whether AJM informed noteholders that they required more time to finalize the recapitalisation arrangements and given the scale of what was required it likely needed shareholder approval at a General Meeting. So there is a lack of clarity as to whether AJM would have access to funds to meet the 10s of millions due by the 31st October to get AJM out of breach.
There were initial reports that AJM was seeking to raise AU$150m+ to reduce debt to around $30m. We know the debt outstanding to noteholders is around AU$250m (US$175m).
This left as much as AU$70m in doubt. Also keep in mind that AJM required an influx of funds for working capital.
We do not know the conditions for the waiver of key covenant breaches and outstanding payments till 31st October. It is possible a minor covenant breach not considered "key" was used to appoint Receivers.
Of note, based on personal and peer calculations of the current noteholder debt it does not appear a waiver fee was applied in this instance.
It is possible AJM were pressing for some debt to be swapped for equity under the new proposed structure or other unpalatable requests of the noteholders.
There could also have been a condition that the time was to be used to find a solution to repay the debt to noteholders in entirety and there has been no mention in the media that AJM had lined up alternative financiers.
It would also have been of concern if, as it would appear, AJMs solution involves a large portion of funds in the form of equity from Chinese interests.
Some have mentioned the AJM proposal includes bringing in Ganfeng as a cornerstone investor to the tune of $60-$70m, while it is unclear whether ShanShan or any other Chinese entities have plans to partake.
This would cause great uncertainty for the noteholders as FIRB still has the finalisation of the A40 transaction stalled and even went to the extraordinary length of blocking a proposal for an investment by Chinese interests in AVZs Lithium project located in the Congo.
To me it appears there was some communication on Monday the 26th that satisfied the noteholders they were able to appoint Receivers and Managers. It seems apparent this action blindsided AJM.
It would appear that PLS was extremely well organised and able to sign binding agreements by Wednesday 28th October.
The speed and precision in which they moved, along with other parties involved suggests a sophisticated level of organisation, and the subsequent haste in which the operation has been progressed into C&M and moves to lay off employees has been astounding.
It appears they had all their ducks lined up neatly in a row.
Whether they have acted unethically or unscrupulously is a matter of debate, however I would be surprised if they had not fully consulted their respective legal teams to ensure they were acting within the bounds of law. The rest of the maneuvering has just been far too precise in my mind for not giving potential legal issues due consideration.
It should be kept in mind that despite being in breach for several months, the noteholders gave AJM more than 2 additional months to find a solution. The noteholders also have a history if regularly providing waivers for fees.
I can also understand their frustration that the refinance earlier in the year included the LDA Put Option Agreement that was not utilised. The rationale for AJM having that facilty available was so that if market conditions did not improve, they would still be able to meet obligations to the noteholders.
It would have been painful to use, as to extract a meaningful amount, it would have to be tapped twice a month and that would have been a lot for the market to absorb.
Have they been harsh, yes. There is no doubt about that, but it seems when presented with a viable option for a full return they jumped at the chance rather than take AJMs word that they would find a solution.
IMO It was only after it became public that PLS had made a deal with the noteholders that reports claimed they now had a solution to pay them out in full.
Quite the strange situation we find the company in where it may well end up in a bidding war for one of it's own wholly owned subsidiaries - ALO.
