By Tom Winnifrith | Friday 12 August 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Shares in Avanti (AVN) peaked at c50p following the reports in the FT that Inmarsat (ISAT) might have considered a 140p bid, a claim that seems ludicrous given the fact that Avanti is drowning in debt and needs a refinancing within weeks or it is tits up time. The shares have now drifted back to 37.375p today. Folks are starting to panic...perhaps they have looked at the bonds.
The bonds have rallied a touch. But the yield is still 17.5% - the price being 82.5 cents. Junk bond yield territory starts at 12-13%. The bond price is telling you that bondholders still expect to take a haircut. Bondholders do not believe the FT. And that should tell you that the equity is, on balance, still likely to be toast.
Inmarsat itself cannot bid for the equity unless another bid emerges. But, having seen the books, it could try to buy up the bonds and just wait for Avanti to breach a covenant, something that will surely happen very soon if it has not happened already.
It is a risky short but on balance the bond price tells you that Avanti is still very much a sell.
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