Emeco has announced it will hold a creditors’ scheme meeting on 13 December 2016 to vote on the proposed recapitalisation and three way merger with Orionstone and Andy’s Earthmovers
Noteholder options are:
- Approve the scheme and receive Tranche B Notes and common stock. Expert opinion estimates that this option should give Noteholders a going concern basis of 100c per dollar in a combination of Tranche B Notes and new Emeco shares
- Approve the scheme and receive a cash alternative equal to 50% of the principal outstanding under your interest in the Emeco Notes
- Do not approve the scheme. Expert opinion estimates that in event of a wind up, Noteholders would receive 34c to 55c per dollar
To explain option one further in highly simplified terms, Noteholders will receive a beneficial interest in Tranche B Notes equal to 80% of their outstanding principal in the Emeco notes, and scheme shares equal to 20% of their outstanding principal in the Emeco notes.
According to an expert opinion provided by restructuring firm Ferrier Hodgson, approximately AUD600m of the aggregate existing debt across the three companies will be restructured into new AUD472.5m Notes in NewCo.
The notes will have a five year maturity and cash interest rate of 9.25% (Tranche B debt). Further, the amounts due to Emeco Noteholders are then discounted by approximately 20%, and the balance of debt is converted to equity in NewCo.
To be approved, 75% (by value) of Noteholders need to approve the scheme. We will need to receive your Noteholders’ responses by midday on 1 December 2016.
Moody’s comments
Both Emeco's note holders and creditors of Orionstone and Andy's will receive a share of 54% of the ordinary shares of the combined group, and AUD$473m in senior secured notes with a five year maturity, extending Emeco's debt maturity profile to 2021 from 2019.
Emeco will also implement a rights issue and refinance its asset backed loan, which matures in December 2017, as a part of the transaction.
"If implemented, the transaction will constitute a distressed debt exchange, which is a default event under Moody's definition," says Saranga Ranasinghe, a Moody's Assistant Vice President and Analyst.
Moody's recognizes that the completion of the transaction will provide the combined entity with significant synergies, increased fleet capabilities and capital expenditure savings. However, in view of the still challenging conditions faced by these equipment rental companies and increased debt levels, although with higher earnings, Moody's considers that the risk of default remains high.
More information can be found here.