WHAT DO YOU THINK OF THIS ARTICLE IPOD???? (especially the...

WHAT DO YOU THINK OF THIS ARTICLE IPOD???? (especially the section I've capped)

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Commander not in command
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'Commander is a perfect example of bank procrastination'
Michael West
April 24, 2008
Page 1 of 2
Commander Communications used to be controlled by David Coe and his Allco crew until a private equity putsch by rival money magicians Babcock & Brown snatched the business five years ago.

Babcock wrested Commander from Coe's control through a pincer movement on the telco's share register along with Sydney anaesthetist Joe Ross.
 
Both Phil Green's Babcock and Ross built up separate stakes in Commander then voted together to depose Coe and his proxies from the Commander board.

They promptly stacked the board with their own troops, including Rob Topfer, Peter O'Connell and Elizabeth Nosworthy, did rather nicely from their two-year stay, and sold out.
 
They did leave a bit of debt behind though -  as you do in private equity deals - and their successors led by CEO Adrian Coote strapped on even more debt and lashed out with a takeover of Volante.

Even before the credit market meltdown mid-last year, Commander was struggling under a terrific weight of bank obligations.

Now, it is staggering about like the pockmarked zombie in the horror movie.
 
No disrespect to management - the new chief executive Amanda Lacaze has reportedly done a fine job in difficult circumstances.

This is a debt story, a story of "going concern-itis'', or the pathological condition of the banks to not be able to pull the plug.

Ditto Allco, Centro, MFS and others who are in default but kept alive by the grace of their bankers who do not want to take a writedown.

For these companies and their long-standing shareholders, the reticence of the banks is a good thing; it's a fighting chance.

There is always a prospect of recovery,  though, their share prices show it's a hairy-chested bet.

It is hard enough for good companies to get funding from their banks, or the commercial paper markets - and certainly not without forking out. Take Wesfarmers.
 
For the banking system and the economy, however, the reluctance to liquidate simply puts off judgement day in the banks themselves.

Since everyone is quietly grimacing about problem exposures but no one is calling them in, this going concern-itis will only undermine the health of the whole market. At what point does the pill just have to be taken?

If we look at ANZ,  new boss Mike Smith has opted to expand into broking and stock-lending via equity stakes in Tricom and Chimaera, rather than take the pain .
  
Mind you, that is not a huge strategic stretch for a bank. 

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In the case of Centro, if there were good news to announce,  the market would know it by now. The data room has been opened.
There is no suitor. It's too hard. Rumours of white knights ripple through the market from time to time which are either wishful thinking - or market manipulation.

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Commander is a perfect example of bank procrastination. 

It has been in default, been refinanced, done a strategic review, dumped mangement, tried to sell assets, auctioned the whole business (no takers), taken writedowns,  and is now undertaking a "turnaround plan''.

The market cap is just $41 million. 
 
If the numbers are any guide, Commander's banks Westpac, National and CBA are in denial.

At the December half, the company owed its banks $360 million, and that is the limit of its already extended credit facility.

Operationally for the half year it lost $100 million in cashflow. Net assets are just $20 million. It wrote off $129 million in goodwill.
 
On top of all this there is another off-balance sheet debt, secured against receivables, of $75 million which is disclosed in the annual report. No more detail.
 
On a bright note, Commander's revenue for the last half was $458 million and that's a nice whack of revenue to have when you are trying to stem losses and turn a business around.

Still, burning $100 million in operating cashflow, with no large assets to sell and debt which is ten times your market cap...it is not a great time to be facing the headwinds of a difficult retail climate.

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