Good to see the same old faces are still happy to promote this share.
This short is fascinating and has the potential to put the company into administration if the reported debt held by the shorter is correct.
I don’t believe it will or that the intention is to see the equity hit zero but the position they have created has to be admired and respected.
Let me give you one scenario of where they could have spent some of their reported $380m.
Take the retail bonds for example, they could well have been picking these up for under £40 during 2016 and around £80 in the run up to the 2017 refinancing so at an average of £60 they only needed to spend £75m for the crucial 25% of the votes needed to block any resolution at a bondholder meeting.
These bonds are now trading at or slightly above face value so potentially they are sat on a profit of £50m with the controlling vote and that is ignoring the coupon they will be receiving.
The above scenario is purely hypothetical but if they do have the controlling vote over £500m worth of the debt and one crucial financial instrument in the debt refinancing that has to be agreed and implemented by the end of May 2021 for potentially £75m or at worst full face value of £125m it makes you wonder where the rest of their reported $380m has gone?
This could only work on a heavily indebted company with limited scope to borrow due to the complexity surrounding the recent debt restructuring with several financial instruments interlinked where the senior debt of those instruments is equal, secured against assets held by subsidiaries of the holding company and had zero chance of being paid off at maturity.
This hedge fund appears to have played a blinder, it makes you wonder if they showed their hand as the negotiations have now begun.
This could make the convertible bondholders look like amateurs.
Good luck to the brave!