The LatAm smelter conglomerate could be an alternative to...

The LatAm smelter conglomerate could be an alternative to obtaining funding from traditional financiers. i think that the key issue to consider with regards to the debt is not whether AIM will find the money (there are always financiers prepared to lend money) but rather how much over the risk free rate we will have to pay in interest terms.

Up until a few months ago financiers were not pricing in risk appropriately when putting together financing deals (remember the private equity splurge ... I can almost guarantee that one of the major reaons why LBO deals stood up was that the financiers were not factoring in enough risk premium on the deal and Private Equity firms were able to make deals stack up on the basis of having low borrowing costs). Currently we are seeing risk being adequarely factored into deals now and this WILL impact the rates at which AIM will have to pay on any debt.

So what does this all mean? Well there are realistically two outcomes:

1) AIM waits until the credit markets loosen up again and capital starts to become cheaper. This theoretically should happen after the US Fed cut the official cash rate in the US and / or the markets calm down a little bit. At the moment volatility is seriously hampering any efforts to put deals together (anyone who thinks that the Dow swinging 150 points up one day and then 150 points down the next is normal has rocks in their head).
2) AIM will need to further dilute by issuing equity

Option 2 is obviously not pretty however these are the hard cold facts of life. I am leaning towards option 1 being sandbagging the debt for the time being until the Fed cut rates and markets stabilize before going out and getting debt sorted out. If they tie up debt now I can appreciate that shareholders will be very happy because they will get their announcement fix ... that is until they see that they are paying +5% over the Fed Cash rate for the debt.

Patience is the key on this front I think ... in the mean time we best strap ourselves in as markets continue to unwind. As stated previously these are personal musings and should not be the basis of any investment decisions.

As always, please feel free to argue away or disagree .... am always happy to be corrected.