Convertible Notes reset price Dec 2015, page-5

Thanks Al,

There’s actually two mistakes I was waiting for someone to notice. First, there was never an option for the Company to capitalise the coupon payment on the Convertible Notes, that option was always only available for the Second Lien Notes – my mistake – but it makes no alterations to the conversion ratios. The second was that I didn’t take into account the Placement Shares (24,000,000) when considering the potential percentage of ownership the Note Holders will possess if the amendments are carried. It’s only a small difference but does mean the Note Holders will hold slightly more of the Company than I previously said.

As far as the First and Second Lien Notes (US$125m and US$265m) are concerned, technically they are held by a different company, Linc USA GP (as you know). I’d be surprised if the Group doesn’t allow Linc USA GP fail and let the subsidy, and therefore the creditors, absorb the cost. That way the Company (as opposed to the Group) will be debt free after the amendments to the Convertible Notes are passed and the Note Holders (or whoever they sell their rights to) strikes their conversion privilege (if they do). And they almost certainly will because the real question to ask after this week’s announcements is this: with the Convertible Bonds stripped of their coupon how do the Note Holders expect to see A) a return of their capital; and (more importantly) B) a return on that capital?

These hedge funds know they can’t sell 1.6 billion shares into the market (even over a protracted period) and maintain the stock price. So there's some other game in town. If they convert at S0.12 and flood the market it will be a race to the bottom of the pit. What are they up to?

As I said last week, this will get far more interesting before it’s over.