SML - Synlait

[snapiti]

Im fascinated on what security they plan on holding.

Banks have first dibs on $410m of debt. Lets take off the $130, this still leaves $280m the banks can claim first.

Obviously Dairy works isn't worth the $130m Synlait reckon its worth. Lets call it $100m

That leaves $180m the banks have dibs on.

I reckon its fair to say that Pokeno is pretty much worthless as a trading concern. It appears to be a substantial loss maker and plant is grossly under utliised. Note how in the latest update no mention is made of this as an asset sale / balance sheet correction tool. So I reckon Synlait have figured out they aren't going to be able to sell it.

That leaves Dunsandel. Its profitable. But farmers are threatened to leave if they dont get paid. In the half year update there was $280m of accounts payable. I presume much of this is un/semi secured milk supply

So, presently Bright arent prepared to stump up with $130m + $280m to clear bank debt.

No mention made of how farmers are going to get paid. But these folk are ahead of bond holders. And that's another $180m duer at end of year - where is this going to come from and against what security?

Just maybe Bright will take on all the secured debt and let the bonds fail, that gives them total control IMO

[snapiti]

that's what the bond market is telling you

[Minimoke]

basil as I see it if the bonds are not repaid the company goes into receivership, now with bright dairies having secured debt over the company they are in a much better position if receivership comes along right, or well they lose some control

From half year update
"Without successful execution of an equity raise in combination with other deleveraging options by 31 July 2024, the Group will be in breach of its banking covenants and the banking syndicate will have the right to call on the full $410m of outstanding bank debt. The Supervisor for the $180m subordinated bond will also have the right to call on the bond which will become repayable on demand immediately due to the bank facilities being in default."

At this point there is zero news on an equity raise

Deleveraging options , like selling dairyworks and north island assets appear to be off the table.

And if that doesn't inform punters Synlait have today said "Synlait is now forecasting it is unlikely to meet three of its current banking covenants as at 31 July 2024, the interest coverage ratio, leverage ratio, and senior leverage ratio. "

[Teitei]

Nothing new in the announcement except Bright making their move, chess piece by chess piece.

[Minimoke]

Just maybe Bright will take on all the secured debt and let the bonds fail, that gives them total control IMO

If Bright get more than 50% control of Synlait this triggers a bond change of control event at which point bond holders can ask for all their money back.

If they don't get all their money back (and where is this money going to come from?) then you are looking at a liquidation event.

[Basil]

Just maybe Bright will take on all the secured debt and let the bonds fail, that gives them total control IMO

Starting to look that way.

[snapiti]

Nothing new in the announcement except Bright making their move, chess piece by chess piece.

thats the one

If Bright get more than 50% control of Synlait this triggers a bond change of control event at which point bond holders can ask for all their money back.

If they don't get all their money back (and where is this money going to come from?) then you are looking at a liquidation event.

control in this instance can be done via taking on secured debt, that won't trigger 50% control trigger, then let the bonds falter and who is in the box seat.....the secured debt holders, all others are screwed

[Buzz]

At this point there is zero news on an equity raise

What's this then, from today's market update? ""We are grateful for the support from Bright Dairy. We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level."

[Teitei]

thats the one
control in this instance can be done via taking on secured debt, that won't trigger 50% control trigger, then let the bonds falter and who is in the box seat.....the secured debt holders, all others are screwed

And there are highly intelligent and individuals with reputations to lose who are willing to become directors to screw 'all others' when that means personal liabilities (refer Mainzeal)?

Wow!

[Minimoke]

What's this then, from today's market update? ""We are grateful for the support from Bright Dairy. We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level."

The first hurdle is getting shareholder approval of the loan. We have zero news on what the terms and conditions of that loan is. Bright arent allowed to vote on the loan.

Just because synlait say there is a future equity raise does not mean there will be an equity raise. They had already flagged the need for an equity raise earlier in the year. ("The letter includes a commitment to participate in a future equity raise and to extend a loan at the request of Synlait, subject to Synlait and Bright receiving all necessary approvals. ")

This was at a tiime Synlait said they wer selling Dairyworks - but that is off the table now.


We have no detail on what that equity raise will look like - ergo no news on it.


Synlait also said back then "Synlait is progressing with an equity raise alongside its strategic review of the North Island assets. Given that Synlait's share price is trading at a significant discount to its net tangible asset value, the Board believes that asset realisation should be progressed to produce maximum value for our shareholders. Equity raising remains an option under consideration by the Board in parallel to achieve deleveraging of Synlait's balance sheet."

Back then shareprice was double what it is today.

Lets face it.Synlait are in a whole pile of worsening trouble. Nothing they say can be taken as gospel truth. They are running out of places to shuffle deck chairs.

[Basil]

Casting my mind right back to when I first started investing in the early 80's I'm struggling to recall a company that's been in deeper doggy doo without actually being in receivership already?. Nothing comes to mind. Pretty clear Pokéno is worth pennies on the dollar compared to cost and Dairy works worth nothing like the written down value.  An absolute ocean of debt and most assets worth very little. Most suppliers headed out the door. My goodness it looks extremely grim!

[snapiti]

Feltex comes to mind

[Minimoke]

If we are going to talk about an equity raise, how much will it be?

At the moment lets say bank and bond debt = $590,000,000

And farmers/suppliers need to be kept happy. Payables exceed receivables by $177m

So basically by the end of the year they need to find $767,000,000.

Obviously they can't service this out of cash flow / excess profits. Because there is none.

There is no offer on the table for Dairy works. Pokeno doesn't seem to be on the table. Nor does the fresh milk processing facilities built for Foodstuffs. So no sign of fast cash on those fronts.

Could they try and totally clear the decks with a $767m equity raise. Lets say its done via a share issue at a 20% discount of current share price. Or $0.32 a share that would mean 2,393,375,000 new shares. Or 91.6% of total issued shares.

Gee, that's not going to work. What shareholder would accept that kind of dilution.

Trouble is, if we go for $359m cap rais at $0.32 that still over 1,093m shares or 83% of the company.

What about $310m ($130m for the banks/bright, $180m for the bonds) thats 968m new shares.

So just how is this equity raise going to work?

[Minimoke]

Feltex comes to mind

As I recall Feltex kept saying it was fine until it wasn't. And then it was all over.

[snapiti]

As I recall Feltex kept saying it was fine until it wasn't. And then it was all over.

true that......