Tuesday, March 25, 2008
Update on Thornburg
TMA has scrapped its initial plans to raise cash through a convert with a 12% interest rate and .75 conversion price. Instead it will offer $1.35 billion of debt paying 18% and offering warrants at .01 a share. So, this deal is significantly worse than the terms they initially sought. According to Bloomberg, a new investor MaitlinPatterson Global Opportunities Partners III has agreed to buy $450 million of the notes. Apparently, there will be a tender offer for 90% of the preferred stock plus warrants equal to 5% of the common shares. Although I fully admit to not being an expert on these types of deals, this sounds horrible for the common stock and I am amazed that it has rallied on the news. But maybe someone with a more sophisticated understanding can explain it to me. I'm waiting...
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2 comments:
just a guess at the math: 1. before the dilution: 4% chance stock is worth $30 and 96% chance stock = 0. fair value = 1.20.
2. after dilution: 11% chance stock is worth $15 (diluted 50% for simplicity) and 89% chance stock is still worth $0, so fair value = 1.65
i guess it's all in how you are figuring their odds of survival.
if they survive 4 years you break even, yes?
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