Tuesday 14 February 2017 by FIIG Research Company updates

Emeco to hold creditors’ meeting following the revised restructuring scheme

By Mary Anne Low

Emeco has announced its revised timeline to hold a creditors’ scheme meeting on 13 March 2017, to vote on the revised proposed recapitalisation and three way merger with Orionstone and Andy’s Earthmovers

The revised proposed scheme remains largely the same for Noteholders as the initial proposal announced in late 2016. Noteholder options are:

  1. Approve the scheme and receive Tranche B Notes and common stock. Liquidation firm Ferrier Hodgson estimates that this option should give Noteholders a going concern basis of 100 cents per dollar, in a combination of Tranche B Notes and new Emeco shares
  2. Approve the scheme and receive a cash alternative equal to 50% of the principal outstanding under interest in the Emeco Notes
  3. Do not approve the scheme. Ferrier Hodgson estimates that in event of a wind up, Noteholders would receive 34 to 55 cents per dollar

We note that the revised proposed scheme now includes:

  • A commitment by alternative asset management firm Black Diamond to underwrite the remaining A$10m of the A$20m equity rights offer, and
  • A placement of additional shares to Black Diamond under the Black Diamond Agreement

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 the scheme documents, Noteholders will now receive 21% – previously 23% – of the total shares of Emeco, excluding Black Diamond.

According to Ferrier Hodgson, approximately A$600m of the aggregate existing debt across the three companies will be restructured into approximately A$468.4m Notes in NewCo.

The new Notes will be denominated in US dollars, have a five year maturity and cash interest rate of 9.25% in Tranche B debt.  Further, the amounts due to Emeco Noteholders are then discounted by approximately 20%, with the balance of debt converted to equity in NewCo. 

By value, 75% of Noteholders need to approve the scheme. Emeco directors unanimously recommend that Noteholders vote in favour of the scheme, in the absence of a superior proposal.

We will let you know when we receive the notice of meeting for the scheme, due to be sent this month.

Black Diamond Agreement

In return for Black Diamond's support for the revised scheme, Emeco has committed to:

  • Issue Black Diamond an additional number of shares equal to 5% of the total number of shares outstanding, following the completion of the Transaction and the Rights Offer
  • Issue additional shares as necessary to keep Black Diamond whole, as a result of any dilution due to the Initial Placement. Further, the amount of shares to be issued to Ian Testrow under Emeco’s Management Incentive Plan will be reduced by a corresponding amount
  • Appoint one director nominated by Black Diamond to the board of directors following Completion
  • Pay Black Diamond’s legal fees
  • Appoint Black Diamond as joint underwriter to underwrite half of the A$20m Rights Offer on a proportional basis