Thursday, June 17, 2010

Creditors Loving ACAS

ACAS posted an announcement that it amended its debt exchange offer. The news is interesting, to say the least.

ACAS had trouble getting bond holders on board with its previous a debt exchange that would make ACAS' unsecured creditors into secured creditors, in exchange for waiving the net asset covenants in ACAS' original debt agreements.

Stifel said ACAS was going to cough up more dough in the form of "make whole" payments to get the bond holders on board, and the stock rallied a little.

The real story is a bit more subtle. There are many claims, each different, by different creditors: lines of credit payable without penalty at will, debt-swap agreements whose parties have speculative future potential rights to payments, and bond holders with a right to fixed payments over a specific time period and the right to keep getting paid through a stated maturity date. As reported by ACAS previously, the folks who can be repaid at will without penalty were 100% on board with ACAS' proposed plan, and so were those with contingent future payment rights. However, the bond holders -- the creditors with protection against early repayment -- had single-digit approval (~6%) now being offered (a) the right not to get paid immediately on approval of the restructuring deal, and (b) continued call protection for the future. And they are now signing onto the restructuring plan: public note holders' approval has jumped from 43% to 72%. Essentially, this suggests that the holdout creditors' main problem with the restructuring plan was the risk they might stop being ACAS creditors. In other words, the problem isn't lack of faith in ACAS but ire at being deprived of their stake in ACAS.

If this isn't a bullish indication of creditor sentiment in favor of ACAS, I don't know what is.

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