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There's no surprise that the senior note holders

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vlftraders   Thursday, 10/08/09 11:17:39 AM
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There's no surprise that the senior note holders got fully converted into equity. I AM surprised that they felt compelled to add so much new capital. Net of the Sun Capital payback, AURD is bringing a new $70M in cash in the front door.

Now I'm sure that all y'all are interested in hearing a valuation analysis.

The truth is, we won't know what fair value might be until we have some sense of what the terms of the warrants are. Still, we can make some assumptions:

1) The warrants are exercised at a penny per share, and only require that AURD hit certain financial targets to be exercised (I've not heard of warrants like this, but there's no reason why they couldn't exist);
2) The new notes are fully converted into equity.

Let me see if I can't walk you through the math, as I understand it. Note that this is not the likely sequence of things, but that order doesn't really matter in our attempts to estimate fair value.

Start at 2%, our residual ownership. Add the 15% from the warrants. Post note conversion, that 17% total would become 6.8%.

If, as in my former analysis, we assume that an appropriate EV is around $750MM (which acknowledges the continuing difficulty, but gives AURD little credit for all its restructuring), then we can calculate equity value like this:

Total debt post New Note conversion: $225MM term debt + $55M revolver = $280MM
Total Cash = 65MM from New Notes + current cash = $110MM
Equity value = Total EV - Debt + Cash = $580MM

So we could potentially own 6.8% of $580MM, meaning that our current shares are worth (in my head) a little less than $40MM, potentially.

AGAIN, the warrants are a wild card. I have no idea whatsoever what the terms of those warrants are likely to be. If there's a high exercise price per share, then obviously the value of our stock is going to be less.

But all in all, this doesn't look like a raw deal for equity holders. IT's pretty clear that Lasky went to bat for equity in these negotiations, AND got a suitable rework/cash inflow to make the business work.

Plus, this didnt effect/include their Mexico Operations ;)

VLF

Please DO NOT trade in any way based on anything I do or say. Be an adult, and be responsible for your own buying and selling actions...After all, wasnt it YOU that clicked the Buy button?
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