ACAS rose above $5 this morning, possibly on sentiment related to the soon-to-close Mirion IPO. If the deal closes this week, ACAS will be repaid all its MION-related debt and will exit millions of shares, and will end up with what is probably a control block (not a majority stake, but enough to direct the business) of a publicly-traded company with fortunes that will likely only improve with the rise in demand for both energy and non-petroleum energy.
Of course, the last couple of weeks' lousy market has impacted the valuation of companies, including Mirion at IPO, so the $16 discussed in MION's last filing is sure not to occur as hoped. However, the ~8m sh ACAS is selling isn't the only place it gets benefit from the IPO. ACAS gets its debt repaid, and it gets to change the value of the ~10m shares ACAS will keep on its books. ACAS turns illiquid holdings into cash, plus liquid shares that no longer suffer an illiquidity discount. Under FAS 157, ACAS may even be able to apply a control premium. ACAS gets cash and it gets to engineer its FAS 157 valuation of its remaining MION shares toward the good side. On my math, at the plausible IPO price range, ACAS should get at least $150m and the ability to re-price its remaining equity consistently with FAS 157. The NAV impact of the issuance is thus highly advantageous to ACAS at any plausible IPO price, which I'm currently guessing (Warning: WAG) to be north of 10 despite the current market.
The next question is what ACAS will do with all that cash.
If ACAS' lenders don't sign on to the proposed refinancing arrangement, ACAS will eventually have enough to just pay them off. I don't see that happening, though. ACAS' management said earlier that they thought ACAS' refinancing deal would turn out to have good long-term financing terms, and I don't see ACAS wanting to start over from scratch with new lenders. Maybe if ACAS found lenders who wanted to lend to ACAS and refinanced to pay off all the departing lenders and much of the remaining lenders, ACAS could more forward with a credit line reduced by the size of the portion underwritten by the departing lenders. Honestly, one could go blind working out what might and might not be possible – the real questions are what management wants to do, and what the hold-up is with the current lenders. Is ACAS trying to renegotiate the deal on the basis of its improved prospects, or is the hold-up really with the lenders?
As attractive as bankruptcy is for solvent debtors, it would frighten some owners out and force some instutitions out (who can't hold "bankrupt" equities), and tarnish management's reputation for being able to perform its contracts – having its banks forced by court order to take a deal they didn't agree to take isn't the way we want our company to be seen to operate, is it? ACAS has a strong incentive to avoid bankruptcy, but also a strong incentive to refinance its 10%+ debt back into the single digits. The liquidity and FAS-157 impact of the IPO will help improve ACAS' flexibility and negotiating position, and leave us with optimism for the future but continuing puzzlement about the delays in the debt refinancing we'd expected to be done late last year.
I'll look forward to evidence of the MION IPO pricing and ACAS' take from the deal, and I'll look forward to evidence of ACAS' plan for its refinancing debt. Of course, with the banks currently enjoying default interest rates, banks may be dragging their heels on purpose without any intent to shut down dealings with ACAS at all ....