Saturday, March 09, 2024 3:05:49 PM
It is all due to Article 2 (specifically 2.05.c)) of the Indenture between AVID and the trustee, U.S. Bank National Association.
AVID sold the 2026 notes back in 2021. The U.S. Bank National Association was the Trustee and tracked who owned the notes. Initial issuance are “Global” notes defined in 2.05.(b).
These notes restricted resale/transfer of the notes for one year after issuance (Resale Restriction Termination Date). All notes prior to the end of the restriction carried the Restrictive Legend.
Note, the Company is entitled to, but that doesn’t mean it HAS to instruct the Custodian to surrender the notes so new ones without the restrictive legend can be issued, But the company does have to notify the Trustee the restricted period is over.
So, on March 17, 2022, either notes were presented to the trustee for sale/transfer/re-issue and the new notes continued to carry the restrictive legend, OR the holder is claiming it was the company’s responsibility to request the global note(s) be surrendered for exchange and new notes without the restrictive legend be issued.
If it was very clear the company was at fault, there is no doubt the previous financials would have to be restated, and since the company is still investigating, and explicitly said they had received no notifications of the issue prior to the acceleration notice, I think it is questionable whether AVID owes the additional interest. My guess is the note holder invested with the expectation there would be a buy-out, or the PPS increased substantially for an exchange etc. In fact, if you go back to the 2026 notes PR regarding the covered calls, it says
So the cost of the covered calls went back to the note purchaser immediately as profit! The calls capped the company's exposure, but at the same time made it worse for the bond holder if the PPS went higher than the call value as they would have to cover the calls. As I’ve said before, no one invests in 1.25% notes without knowing they are going to make money some other way on the deal. I imagine they expected a buyout by now, and when it didn't happen, asked their lawyers "how can we get out of this 1.25% deal. Waaalaaa! Then they start shorting CDMO and drop the restrictive legend bomb, issue the acceleration and cover the shorts.
Again, WORST CASE is CDMO owes an additional $1.5M in interest, and the new notes will cost them higher interest for the next 5 years. I wouldn’t at all be surprised if it is the same entity buying the 2029 notes that owned the 2026 notes. AND it sure would be good to know who the initial buyer was of the 2026 notes and if they were sold etc. That would tell who triggered this event.
FFTT
JBAIN
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