Monday, August 11, 2014

Walter Energy: Unregistered Sale of Equity Securities $WLT

Announced today:

"We have agreed to issue an aggregate of 2,250,000 shares of our common stock, par value $0.01 per share, in exchange for $25,000,000 aggregate principal amount of our 9.875% Senior Notes due 2020 (the 'Senior Notes') held by a noteholder.

We will not receive any cash proceeds as a result of the exchange of our common stock for the Senior Notes, which notes will be retired and cancelled. We executed this transaction to reduce our debt and interest cost, increase our equity, and improve our balance sheet. We may engage in additional exchanges in respect of our outstanding indebtedness if and as favorable opportunities arise."
This values the notes at 60 cents. Alternately, it was like issuing equity at $11.11 to repay debt at par.

Either way, a very good decision by management. I had been worried that they wouldn't be rational enough to do these. This one transaction saves them $2.47 million in annual interest expense, and if you think the stock is valued fairly at today's price, earns an instant $15 million capital gain.

If you think the stock is worthless, they just made $25 million for nothing! The CFO's office is now the most profitable part of Walter Energy.

1 comment:

Anonymous said...

Is the math that easy? A simple division? Does the current value of the Bonds come into play?