Saturday, February 22, 2014

James River Coal ($JRCC) - Old 2015 Notes Versus New 2018 Notes Created By Exchange Offer Last Year

This was the exchange offer that the company conducted last May. The $90 million of participating, Existing 4.5% Notes due 2015 that were unsecured and had no holding company guarantees were exchanged for $55.8 million of new 10.0% Senior Convertible Notes due 2018.

Here's the interesting thing they did -  if you took the offer, you got a 38% haircut to principal. But you get a 2.2x increase in your coupon. The result is that your coupon payments are actually higher.

The only problem with that is that, as we are seeing, the company may file for bankruptcy and so you don't get the four years of higher coupon payments that you thought you would. (Which actually would have earned back a lot of the principal haircut.)

The kicker that the company threw in is that the new notes have some subsidiary guarantees. So they are structurally senior to the old unsecured notes and will slurp up a lot of the value in a bankruptcy.

That is undoubtedly why the old 2015s are trading at 12 cents and the 2019s are trading at ~19 cents.

1 comment:

Anonymous said...

Any updates on whether company is making interest payments... doesn't seem like there will be any value left for equity (or much for debt)