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Re: bwana12 post# 1495

Thursday, 05/06/2010 8:25:06 PM

Thursday, May 06, 2010 8:25:06 PM

Post# of 1731
Bwana- there is something that either i do not understand or something you are not considering. I'm not trying to be a pain but help me out with my logic:

- C/MM have a senior position to the preferred in the event of a change in control (junior to the preferred in the event of a liquidation)

- in the event of a outright sale of the company the C/MM mezz equity has a $716mm liquidation preference (in the event of a liquidation they have the same liquidation preference but is paid off after the preferreds)

- for the equity holders to receive $0.50, the buyer needs to assume the preferred and pay C/MM $716mm. This effectively raises the purchase price significantly. This is, of course, if this is done before the mandatory convert in 6 years. After 6 years and the mandatory convert, C/MM get diluted significantly- the same purchase price only gets them ~$530mm (($716mm + $30mm)/210mm shares times C/MM shares held). So i'm not sure why they would sell the co after 6 years.

- so the way i see it, if the company is sold the buyers may not even need to assume the preferred shares. A buyer is going to pay the present value of the future cash flows- if that doesnt equal (currently) $865mm, the equity holders arent getting $0.50 (716mm mezz equity liquidation preference + 125mm pref eq liquidation preference + 30mm equity valuation ($0.50).

To maximize their investment, MM/C need to sell the company (not liquidate) before the mandatory convert. Otherwise they are leaving money on the table.

I am not an attorney, but it seems like there wouldnt be too much of a lawsuit if the board sells the company for what it's worth- defined as what the market will pay.

In your statement you say "if MM and CC....sell the co's assets the buyer will factor the preferred into their numbers." I do not think this is true- in the event of a liquidation (which is selling the companies assets) the preferreds get paid before anyone gets any proceeds. It's very clearly stated in the prospectus.

"Upon any voluntary or involuntary liquidation, dissolution or winding up of Scottish Re, holders of the perpetual preferred shares are entitled to receive out of the assets of Scottish Re available for distribution to shareholders, before any distribution is made to holders of ordinary shares or other junior shares, a liquidating distribution in the amount of $25 per perpetual preferred share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Distributions will be made pro rata as to the perpetual preferred shares and any other parity shares and only to the extent of Scottish Re's assets, if any, that are available after satisfaction of all liabilities to creditors.

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