Investors can hear ACAS' presentation on the completed debt exchange, and download slides to follow along.
The upshot? ACAS paid in cash all the creditors who wanted to be paid cash and refinanced its outstanding debt with new fixed-rate debt ($1.03B at 8.96%, declining to 7.96% when principal falls below $1B) and floating debt ($281M at LIBOR+650bps, reducing to LIBOR+550bps when outstanding debt fallw below $1B; LIBOR subject to 2% floor). ACAS paid creditors a 2% closing fee on the new $1.3B debt, which is secured debt; a 1% fee will also be due on ACAS' outstanding balances on December 30 2011 and December 31 2012. $528M of the new debt is non-amortizing, and $779M is subject to a repayment schedule. The repayment schedule has two tiers: the amount ACAS must pay, and the amount ACAS must pay to avoid increased interest. The chunks aren't trivially small, but next to the cash ACAS has shown it can accumulate through exits, it's not frightening – especially the minimum amortization schedule, which calls for a payment at the end of December 2012 and one in the middle of 2013. The low-interest schedule doesn't have any principal payment until December of next year, and it's less than $71M.
ACAS will be making debt payments as it operates: the secured debt agreements require ACAS to pay creditors a share of "excess" cash flow and asset dispositions above a threshold (above $580M, "excess" exits will be directed toward debt repayment at 50% until debt falls below $422M, then 25%). New equity raises aren't subject to paydowns at all for two years, but any new debt raising must be used to repay existing creditors. In other words, ACAS can refinance the secured debt but can't add to the secured debt until it's repaid its original creditors. This suggests that ACAS won't be raising its cheaper next round of debt from its existing creditors, or they'd be bidding against themselves to lower ACAS' interest rate. Apparently, the definition of "excess" and the application of the repayment threshold means that (according to slide 5) ACAS can raise $1.16B from exits of pledged assets and apply the funds for new investments or general corporate purposes.
ACAS' debt:equity ratio is 1:1 following the debt repayment, and ACAS has $11m in unsecured debt not exchanged in the transaction. ACAS' debt covenant breaches are now gone, and the ovehanging bankruptcy risk has been alleviated. Since ACAS has enjoyed $425M in net portfolio appreciation since the GDP turned positive in Q3 2009 and ACAS has enjoyed a 22% annualized ROE from that point through March 31, 2010, it seems that if the economy continues with positive GDP, ACAS will be in a great position to realize benefits through its diverse portfolio of equity investments.
As previously alluded to, the arcana of predicting the financial impact on ACAS of eliminating its debt covenant breach and lowering ACAS' cost of funds from the double-digit default rates it was paying before the exchange and reducing the principal of that debt by $1B seems sufficiently complex (there are lots of things impacting the shares other than these two factors) that we're condemned to wait for the next couple of quarterly reports to see the specific impact of (a) eliminating the debt covenant breach is on ACAS' NAV discount (which we learn after this quarter's results announcement) and (b) improving ACAS' NOI through improved debt spreads (which we begin to see in the announcement for the upcoming quarter's results).
Assuming the near-term play in ACAS had to do with fixing both of these conditions, it looks like we're going to be waiting about five months to get both the close of both quarters and ACAS' annoncement of those quarters' results. Assuming the economy doesn't go off a cliff (don't say "how much worse can it get?" -- you'll jinx it!), ACAS' performance over that period may give investors further reason to hold.
Looking forward to the news!