SML - Synlait

[Goob]

unless Atm (as 20% shareholder) buys it out.

Yeah that's what I'm getting at. There's an added incentive for A2 to buy Dunsandel.

[snapiti]

I can see SML going the same way as food spice company burns philp did, large sher sher Greame Hart sat back and watched the company disintegrate before stepping in to look like a white knight by putting an offer on the table that saved the company from bankruptcy......I am pretty sure he cleaned out the board and soon after the company was making 10's of millions.
One just has to guess at what price bright dairy will make an offer....given SML's circumstances I think they will wait as long as possible especially given the bond payment due at year end and the 50% change in ownership trigger attached to those bonds..... IMO this trigger and bond payment could mean the SP is worthless   

[BlackPeter]

I can see SML going the same way as food spice company burns philp did, large sher sher Greame Hart sat back and watched the company disintegrate before stepping in to look like a white knight by putting an offer on the table that saved the company from bankruptcy......I am pretty sure he cleaned out the board and soon after the company was making 10's of millions.
One just has to guess at what price bright dairy will make an offer....given SML's circumstances I think they will wait as long as possible especially given the bond payment due at year end and the 50% change in ownership trigger attached to those bonds..... IMO this trigger and bond payment could mean the SP is worthless   

Sounds like a likely scenario to me, only that in this case it won't be a "white knight", but a band of kung fu fighters stepping in. And yes, the interests of retail shareholders won't feature very high on their agenda.

[Minimoke]

I was thinking about the Warehouse selling  Torpedo 7 for $1. And just musing if this is what Synlait should do.

Then I got to thinking. Say A2M was to offer to buy  all outstanding shares  (ie 80.1% of shares) at say a 25% premium on todays Sp of $0.70. (Bright Dairy might be quite happy with this) A2m would need to come up with $152.6m. But of course if they did this they would also be buying the debt.

So say for $280m they could by SML out right and pay back the $130m. This would leave A2 with around $520m cash in the bank.

Then lets say they flogged off Dairy works for $50m (surely someone would bite at that price) and Pokeno for $50m they would be back to $620m in the bank.

And then decide to find a clause so they could default on the bands.

So now we have A2 owning Dunsandel for $180m,  quite manageable debt, an opportunity to bring synergies with Mataura - which includes using Dunsandles blending and canning plant (saving them at least $40m spend on this at Mataura). And still have $620m for other M&A activity.

[Clearasmud]

I was thinking about the Warehouse selling  Torpedo 7 for $1. And just musing if this is what Synlait should do.

Then I got to thinking. Say A2M was to offer to buy  all outstanding shares  (ie 80.1% of shares) at say a 25% premium on todays Sp of $0.70. (Bright Dairy might be quite happy with this) A2m would need to come up with $152.6m. But of course if they did this they would also be buying the debt.

So say for $280m they could by SML out right and pay back the $130m. This would leave A2 with around $520m cash in the bank.

Then lets say they flogged off Dairy works for $50m (surely someone would bite at that price) and Pokeno for $50m they would be back to $620m in the bank.

And then decide to find a clause so they could default on the bands.

So now we have A2 owning Dunsandel for $180m,  quite manageable debt, an opportunity to bring synergies with Mataura - which includes using Dunsandles blending and canning plant (saving them at least $40m spend on this at Mataura). And still
have $620m for other M&A activity.

Default on the bonds cough cough lol.
How could they manage that.

[Minimoke]

Default on the bonds cough cough lol.
How could they manage that.

Which brings me back full circle to liquidation - a situation where Synlait can't pay its creditors (and gee - arnet there a lot of them) and Synlait or the shareholders have it placed into liquidation via special resolution (Bright Dairy 39.01% + A2M 19.9% = 58.91%. Which means they only have to convince 16.1% of shareholders to get on board with the idea.

Liquidator moves in and sell assets to pay back net debt of $213m ($413m last reported position less $180m that unsecured creditors won't see.)

So Bright Dairy, a2 plus 16% of shareholders toss $213m into the pot to buy a pile of debt free stainless steel.

Bright could keep Pokeno for a hundred mil. A2 could keep Dunsandel for $100m and keep the 16%ers sweet with Dairyworks that they could flog off for $50m and its a done deal.

Its seems no surprise to me that A2 apparently haven't been approached about a capital raise. Why would they throw say $30m into the cap raise pot (say 20% of a $150m cap raise) when for just an extra $70m they could have Dunsandle debt free.

[Minimoke]

The Bonds will be unsecured and on liquidation of the Issuer will rank:
• behind Synlait's senior bank debt, other secured borrowed money and other claims
preferred by law;
• equally with all unsecured and unsubordinated financial indebtedness of Synlait; and
• ahead of claims of holders of ordinary shares in Synlait and holders of securities and other
financial products and financial indebtedness that rank after the Bonds.

[Clearasmud]

Which brings me back full circle to liquidation - a situation where Synlait can't pay its creditors (and gee - arnet there a lot of them) and Synlait or the shareholders have it placed into liquidation via special resolution (Bright Dairy 39.01% + A2M 19.9% = 58.91%. Which means they only have to convince 16.1% of shareholders to get on board with the idea.

Liquidator moves in and sell assets to pay back net debt of $213m ($413m last reported position less $180m that unsecured creditors won't see.)

So Bright Dairy, a2 plus 16% of shareholders toss $213m into the pot to buy a pile of debt free stainless steel.

Bright could keep Pokeno for a hundred mil. A2 could keep Dunsandel for $100m and keep the 16%ers sweet with Dairyworks that they could flog off for $50m and its a done deal.

Its seems no surprise to me that A2 apparently haven't been approached about a capital raise. Why would they throw say $30m into the cap raise pot (say 20% of a $150m cap raise) when for just an extra $70m they could have Dunsandle debt free.

Except there may be other bidders.

[Minimoke]

Except there may be other bidders.

as i recall a liquidators sole (or primary) responsibility is to creditors. That is to sell assets to those who have debts secured in some priority order by assets.

There is little responsibility to shareholders (thats why they have limited liabilty).  And if you are an unsecurwd creditor then good luck. Your risk has already been recognised by the interest rate you chooae to accept when taking up the bond offer.

How clean would it be if there was $220 worth of debt and current majority owners came up with $220 worth of cash for creditors. An elegant solution.

[Buzz]

It will be a bit of an anticlimax for the train-wreck watchers if the banks just acquiesce and roll over the loans, and even lighten up on the covenants. I read an article recently (somewhere, can't remember) that was suggesting this is a possibility. Nothing to see here, BAU, carry on.

It's said that better to be massively in debt and it's the bankers problem, than a bit in debt and it's your problem. Banks don't want to end up with the asset and a mortgagee sale, let alone liquidation and risk getting pennies on their dollar back.

Back to the train wreck, you don't have long to wait to see how this unfolds.

[snapiti]

I was thinking about the Warehouse selling  Torpedo 7 for $1. And just musing if this is what Synlait should do.

Then I got to thinking. Say A2M was to offer to buy  all outstanding shares  (ie 80.1% of shares) at say a 25% premium on todays Sp of $0.70. (Bright Dairy might be quite happy with this) A2m would need to come up with $152.6m. But of course if they did this they would also be buying the debt.

So say for $280m they could by SML out right and pay back the $130m. This would leave A2 with around $520m cash in the bank.

Then lets say they flogged off Dairy works for $50m (surely someone would bite at that price) and Pokeno for $50m they would be back to $620m in the bank.

And then decide to find a clause so they could default on the bands.

So now we have A2 owning Dunsandel for $180m,  quite manageable debt, an opportunity to bring synergies with Mataura - which includes using Dunsandles blending and canning plant (saving them at least $40m spend on this at Mataura). And still have $620m for other M&A activity.

are you not aware of the change of ownership clause trigger attached to the bonds 

[Minimoke]

are you not aware of the change of ownership clause trigger attached to the bonds 

Triggered by bondholders "Bondholders have the right to elect that Synlait must Redeem all of their Bonds" . Which is pointless if there is no money to repay the bonds. Ergo liquidation

And worth pondering a default triggering event "indebtedness in respect of borrowed money of more than $35 million is not paid when due"

[Minimoke]

It will be a bit of an anticlimax for the train-wreck watchers if the banks just acquiesce and roll over the loans, and even lighten up on the covenants. I read an article recently (somewhere, can't remember) that was suggesting this is a possibility. Nothing to see here, BAU, carry on.

It's said that better to be massively in debt and it's the bankers problem, than a bit in debt and it's your problem. Banks don't want to end up with the asset and a mortgagee sale, let alone liquidation and risk getting pennies on their dollar back.

Back to the train wreck, you don't have long to wait to see how this unfolds.

I've seen those comments. But they seem to ignore the fact that $180m unsecured bonds are due for repayment later in the year. Which banks would want to increase debt by another $180m to a company that just keeps losing more and more money. And imagine the interest rates payable on those extended finance facilities - they would be crippling.

Theres over $400m in net debt - how do you pay that off if you are making a loss and not selling assets?

[Buzz]

I've seen those comments. But they seem to ignore the fact that $180m unsecured bonds are due for repayment later in the year. Which banks would want to increase debt by another $180m to a company that just keeps losing more and more money. And imagine the interest rates payable on those extended finance facilities - they would be crippling.

Theres over $400m in net debt - how do you pay that off if you are making a loss and not selling assets?

I don't know exactly, to be clear, but the banks I've worked for are very cunning and have many strategies before they foreclose and end up with the assets (which they hate doing), or worse liquidation (which they hate even more) and get a portion of their investment back. Don't underestimate the creditors flexibility to wiggle SML out of this obvious but fixable mess, even if it means extending lines of credit and/or ameliorating covenants, albeit certainly still time limited.

[Minimoke]

I don't know exactly, to be clear, but the banks I've worked for are very cunning and have many strategies before they foreclose and end up with the assets (which they hate doing), or worse liquidation (which they hate even more) and get a portion of their investment back. Don't underestimate the creditors flexibility to wiggle SML out of this obvious but fixable mess, even if it means extending lines of credit and/or ameliorating covenants, albeit certainly still time limited.

I havent suggested a bank foreclosure. Banks are only owed approx $220m. My money is on them not giving a brass razoo worth of concern for bond holders.

As I pointed out below an eloquent liquidation would raise that $220 with no problem at all. Banks are happy. A2 and Bright are happy. Bond holders are obviously unhappy - but they got the big interest payment to mitigate the known risk they were taking. And retail shareholders only have themselves to blame for any loss - they have had loads of waring to exit this share. That they chose to hang on isn't a concern of the banks.

Indeed the banks would be super happy if A2 went to them and said "hey mate, we need to leverage our balance sheet, howabout a $100m loan over 5 years?"