By Tom Winnifrith, The Sheriff of AIM | Monday 2 January 2017
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.
Mast Capital the US hedge fund has been the biggest supporter of drowning in debt Avanti Communications (AVN), time and again doubling down on its disastrous investments. But have you noticed this?
It looks like Mast has dumped its Avanti debt holding into a Business Development Corp (BDC) vehicle called Great Elm Capital Corp (GECC). A BDC is a US tax structure with tax incentives to invest in or lend to early stage businesses. All looks rather like it may be a way for MAST to exit Avanti at face value rather than a massive haircut. I think Mast has contributed it at a mark of 78c and is taking a PIK instead of cash.
You can find the details HERE
I have no idea how this has been achieved, especially when the investor document (see above) contains such gems as:
"MAST also engaged an industry-leading consultant in 2015 to value Avanti's collateral in a liquidation-scenario, which the consultant determined to be in excess of $1 billion."
As 30 June 2016 Avanti's net assets stood at $201.5 million down from $304.7 million in 2015, i.e. nowhere near in excess of $1 billion.
The document also states that Avanti has continued to grow its top line year on year, although clearly this wasn't the case to year end 30 June 2016, and as you well know, prior year's revenue has been bolstered by dubious accounting techniques as explianed in this UK Investor presentation by myself, Lucian, Evil and Matt Earl HERE.
I also note that the document fails to mention that Mast Capital is a significant equity holder in Avanti (as well as debt holder), hence does this not present a conflict of interest between its shareholder and creditor status.
Another red flag to add to the forest of red flags. Keep selling Avanti shares.
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