From City AM:
BLOCKBUSTER is set to file for Chapter 11 bankruptcy as early as today, but the iconic video chain will live to see another day after cutting a debt-for-equity swap with its creditors.
Billionaire investor Carl Icahn and other senior bondholders will swap their debt for all of the company's stock, while providing a $125m (£80m) loan so the chain can operate during bankruptcy.
Under the proposed plan, senior bondholders would convert about $630m of debt into equity of the restructured company. The other bondholders are expected to be wiped out completely. The plan will allow the company to continue operating, although it is expected to close hundreds of stores and invest more in online video rental, putting it in direct competition with Netflix.
For the dozenth time, this is all tried and tested stuff, which would work just as well for banks. Most bank bonds are trading at considerably less than par value (depending on the issuer, the security, it's 'seniority' compared to other bonds, the interest rate payable on them etc). All a debt-for-equity swap does is crystallise these latent losses, it doesn't actually cause them.
Thursday, 23 September 2010
Debt For Equity Swap Of The Week
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2 comments:
No, its all the fault of those senior creditors for insisting that they get preferential treatment of their loans. Obama had the right idea with the car company bailouts, screw the bondholders and let the unions and other assorted stakeholders have the company with state funds to see them trough to the next time they need ... er.... state funds.
That'll learn them nasty bond holders, they won't be coming back with their fancy financial plans and demands to be repaid ahead of anyone else anymore will they? Serves them don't it.
SF, the US car bail outs followed a slightly different set of rules; unions ranked before bondholders, regardless of actual agreed rights. Ford, GM and Chrysler were all on a sliding scale between one extreme and the other.
Plus bondholders didn't demand to be repaid ahead of everybody, they wanted to be ahead of shareholders (obviously) and holders of 'senior' bonds wanted to be ahead of holders of 'junior' bonds, but bondholders generally ranked behind the legal claims of employees, suppliers, pension funds etc.
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