News: AGO Atlas Iron updates on debt restructuring, page-16

More excellent news from AGO, ignored by the market.


This is an effective refinancing to exclude the 2-1 ratio/6 monthly check thereby discharging a vast majority of default risk in future.
Very similar to the FMG refinancing in 2013 to exclude these very same ratios.
The cash covenant term substitution is the best news as it means AGO is forced to keep cash at very strong levels regardless of production volume or COP.
This takes the another death card off the table, in fact the only real one left.
I predicted this.

Many doomsayers were talking about this 2-1 covenant default for the last 2 years and it will put AGO into liquidation (wrong) yet its now removed, by agreement! They were totally wrong, i told you it would be refinanced this way.

The bondholders taking shares means they prefer unsecured stock to secured debt! Like MBN, which means they support the company and think the shares will go up and have value.

The halving of the debt is also great news as it means the expense ledger is slashed in loan interest reductions and COP is thereby reduced also.

The negative is POTENTIALLY dilution.
Lets look at what happened to MBNs massive dilution in similar terms.
In July 2015 the west aust newspaper cited AGO as another MBN style dilution debt for equity.
AGO has sought to avoid that precedent. With MBN July 2014 a 98.5% dilution swapped US$500M debt for equity this was actually a massive positive.
We saw MBN do a 27 bagger run up from 1.6c to 44c after relisting in 3 manic days.
The runup was not sustained and it went into another TH and another 6 bagger run up 3.3c to 17c before closing at 8.3c and another TH & VA where it sits today allegedly due to a low NP although a VA recently confirmed it wasnt insolvent or illiquid and its COP was smashed 80% lower and MBN is now subject to a hostile cheap takeover. The creditors who took shares are now fighting this cheap takeover by blocking all share trading whilst waiting for commodity prices to rebound whilst the mine continues production at record low COP and good profit margins/breakeven.

MBNs restructure is similar but not the same as AGO as the dilution is nowhere near 98.5% nor is the whole debt discharged but half of it, the dilution is more like 62% (1B v 2.6B to 7B) 7/2.6 excluding the CR which was not the bondholders. Also CR holders pumped in more cash themselves.

Will this mean an MBN style repeat of its history for AGO for example-
- a ramp up on reopen from 2.3c to say an 11 bagger of 25c or
- a solid rerate as the business carries on
- a cheap takeover may then ensue with a hostile group buying up the free float to take a 20% holding
- another 2 THs and boom & bust cycles which are a traders dream come true

I guess we can only speculate whether if an MBN style restructure will result in an MBN style history repeating itself. Much of this now rests on the IOP & AGOs COP which has been slashed hard just like MBN and whether a group of bidders will try to mop up the free float shares as AGO is not going bust just like MBN.