The dilution and bad blood by issuing stock to the value of...

The dilution and bad blood by issuing stock to the value of $275M would be completely self destructive. The announcement would signal that they cannot service the debt and cannot see themselves getting other replacement credit.

The market would slaughter the stock during the 20 day VWAP period for redemption share issue pricing in a self-fulfilling spiral down into the dilution abyss. The market knows that nearly all the shares are held by institutions who have no interest being ALZ shareholders, being cash management type trusts, and that they would all be sellers. Redemption for shares is a bad idea and a lose-lose for all concerned. A much better way if required is to raise $275M via a rights or bookbuild into the hands of genuine investors at higher prices, avoiding the panic selldown associated with 20 days of increasing dilution before the wall of AAZPB holders hits the sell screen.

If the balance sheet is too weak to buy them back then just leave them, no need to redeem. If the interest payments become a problem for lending covenants etc then do another capital raising to genuine investors (eg Capitaland) and buy them back. IMO ALZ will wait until their balance sheet is strong enough and credit available sufficiently to start buying back the AAZPBs in an orderly fashion. I think that rather then buying them all back at ounce they will be redeemed for cash over a period of 1 or 2 years. This means smaller, manageable bites of new credit or internally recycled cash to remove the high interest cost hybrids. Further, the signal buying back the first portion of AAZPB will send to the market is that ALZ are comfortable with the business and capital management going forward, which should also see the ALZ share price rise. The institutions that supported ALZ in raising funds for the AAZPB's will also be very happy about getting some locked up cash back even in smaller bites, helping to maintain the "good corporate citizen" status so important to long term relationships with the finance community. I think they understand the moral obligation to redeem for cash even if it isn't an absolute legal requirement.

cheers