Hi Warnie, if things go as you expect, when would step C occur?...

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Tumbleroll

3,495 Posts.

11/12/16

10:23

Post #: 21253691
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Originally posted by Warnie ↑

Hedges buying the debt from banks at 38c in dollar won't be entertaining any D F E anytime soon IMO.
They buy to realise profits, major profits, via a number of approaches inc part breakup of a company, shorting and covering, restructure of their own new "cheap" debt and so on.

Just remember, owning the debt of a distressed company is more advantageous than owning equity in a case of bankruptcy. Debt has precedence over equity if the company is dissolved.

The buyers of bank debt like the risk at 38c in the dollar.
This means they give SGH some value, which is a good start.

What the hedge funds normally ends up doing is what I call a 5 pronged attack, and part A and B has been more or less implemented.

A. Short the stock as hard as possible
B. Buy the ensuring debt from the bank that cant stay even if it wanted too, need to shore up the books, even for cents in the dollar.
C. New terms on the current debt with SGH are provided - Remember the hedge bought at 38c in dollar, but SGH still owe the dollar, plus interest x time. It normally ends up the other banks may then sell out at this point to the same of other hedge funds, but not always.
D. Under the new finance arrangement, Hedge fund A and B get board presence, allowing them to have further control over all debt. Debt rolled into a longer term facility but at higher rates.
E. SP rises, hedge fund makes money covering short which brings down their 38c in the dollar exposure, sometimes down to possibly 0c or somewhere between the 38c and 0c.

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Hi Warnie, if things go as you expect, when would step C occur? Shortly prior to the first default on the loan, or perhaps when it becomes clear to all parties that the first repayment will not be met?

SGH Price at posting: 28.0¢ Sentiment: None Disclosure: Not Held
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Hi Warnie, if things go as you expect, when would step C occur?...

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