By Tom Winnifrith | Friday 16 June 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.
You are drowning in debt so what to do? In this crazy world you take on more debt! and so Avanti Communications (AVN) today announced that it had secured a new $100 million debt facility. Read carefully and you will see what an absolute nightmare this news is.
Avanti states that it has "entered into a facility agreement with HPS1 which will provide a $100 million three-year super senior facility (the "Super Senior Facility"). The proceeds from the Super Senior Facility replaces an existing undrawn higher cost $50 million debt facility and provides $50m additional new liquidity and will be used to complete the construction and launch of the Company's HYLAS 4 satellite and, subject to certain conditions, may be used to redeem or repurchase some of the Company's outstanding high yield notes. The interest rate is 7.5% p.a, versus a rate of over 10% p.a. on the facility that is being replaced.
In order to incur the Super Senior Facility, the Company has received sufficient consents from holders of its outstanding notes to certain amendments to the indentures governing the notes and the intercreditor agreement, including amendments to the EBITDA financial covenant such that the first testing date is to be moved from 30 June 2017 to 31 March 2018 and the thresholds are to be lowered.
The Super Senior Facility will close upon execution of the necessary documents which the Company expects to occur on or around 21 June 2017. Upon the incurrence of the Super Senior Facility, the Company will cancel all outstanding commitments for holders of its 2021 PIK Toggle Notes to purchase delayed draw notes on 30 June 2017 and 30 November 2017.
But before the bombastic prick of a CEO David Williams gets too excited I make three points.
1. HCL states that it provides "non investment grade" debt, that is to say junk bonds. If the bonds are classified thus that truly makes the equity worthless.
2. We were told in December 2016 that the refinancing announced then ( i.e more debt)fully funded the company - it's even in the headline of the press release. In today's RNS we're being told that the additional liquidity that's being raised "will be used to complete the construction and launch of the Company's HYLAS 4 satellite"
So was the original RNS misleading or is the company performing si far below forecast just six months later that it desperately needs more cash? Or both.
3. The EBITDA Covenant has been pushed back from 30 June 2017 to March 2018. There was an EBITDA Covenant at June 2017? Really. That is the first time that has been mentioned. Shareholders should have been told about this as it's blindingly obvious to everyone that Avanti was not going to make this covenant test. And also the thresholds are going to be lower. So in the 6 months since the refinancing, business has gone so badly that they've pushed the covenant test back by 9 months!
What else aren't shareholders being told?
The shares, c800p when the bombastic prick Williams made out like a bandit flogging millions of pounds worth of shares, are up 53% today...to 12.25p. The shares are worthless and are still a slam dunk sell.
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