From an 8-K filing released after the close on Monday:
On October 16, 2012, the Company expects to be in default under certain of its material debt agreements. The Company does not expect to timely pay the October Interest Payment due today, October 15, 2012, under the 2016 Notes which non-payment will result in a default under the indenture governing the 2016 Notes, $143,750,000 in aggregate principal amount of which are currently outstanding. Similarly, the Company does not intend to timely pay a 6% P&I Payment due today, October 15, 2012, under the 6% Notes, $2,759,118.69 in aggregate principal amount of which are currently outstanding, which non-payment will result in an event of default under the 6% Notes and will permit the holders of the 6% Notes to require them to be redeemed. The failure to pay the October Interest Payment and the 6% P&I Payment will also result in events of default under the Loan Agreement, but those events of default are temporarily waived under the First Loan Consent and Waiver Agreement and Second Loan Consent and Waiver Agreement, respectively, as described in Item 1.01 of this Current Report on Form 8-K.Stock was down ten cents (40%) after hours. [I'm surprised there's any bid.]
The Company is considering a broad set of strategic alternatives to address its liquidity constraints including one or more potential transactions and is preparing for all contingencies as part of that process. However, there is no assurance that the Company will be able to pursue a strategic alternative that will allow it to continue to operate its business as a going concern.
Very interesting to hear that the 6% Notes have been reduced to $2.76 million in aggregate principal amount outstanding. That's because the company was able to make principal and interest payments in shares of stock, at a discount to the market price. That's good news - it means that the share count is now probably bigger (and the market cap therefore higher) than people realize. Also, there's less debt in front of the sub notes than we thought.
It looks like the notes may be fairly priced at the current level of 33, while the common stock is looking like a zero.
Here's the real question: why did the company announce that it would miss these interest payments? Do they really not have $3 million in cash?
Remember, the deal with Weixang has a requirement that the company "convert or repurchase" the 2016 notes before Weixang will inject new money. My theory was that the company would do an exchange offer and basically wipe out the existing equity.
Perhaps the noteholders were being recalcitrant, and/or the company was worried about diluting the existing equity? Well, with this announcement the noteholders are going to be spooked and the existing equity is going to get crushed. Maybe it's a calculated move to get everyone to the negotiating table? Why else have such a fuss over a small coupon payment?