Hybrid wireless/fiber backhaul provider ftwr has finally put forth a restructuring plan, but it wasn’t perhaps quite the one shareholders were hoping for. The recession and frozen credit markets left the company high and dry, with insufficient scale to support its debt load and not enough cash to build the rest of the way there. So they froze capex in a clearly untenable situation, began buying back debt at 30 cents on the dollar, and negotiating with large debt holders. The general outlines of their solution will not be surprising to survivors of the last bubble – massive dilution to avoid a worse fate. The company’s stock price had more than doubled since August in anticipation of a more favorable outcome, hence its collapse yesterday back to prior levels. But I’m not really sure what prompted the optimism.
The transaction is complex, but in layman’s terms it goes like this. Fibertower hopes to exchange as much as possible of its 9% convertible debt due 2012 for a combination of new 9% non-convertible debt due 2016 that is senior to the existing debt, a smidgen of cash, and a huge pile of common stock. They will of course follow this up with a 1-10 reverse stock split. If 100% of the existing converts are tendered, the resulting company would have about $125M in debt and about $14M less in cash than whatever the current level is (say $50M? Just a guess). Such levels are perhaps a bit more reasonable for a company with $60M in revenue.
Will this be enough to bring Fibertower all the way to safety? Well, there is no such thing as safety when EBITDA margins are negative, but at least it will bring some sanity to the balance sheet. That will give the company some breathing room to find a pathway to the scale they need for sustainability. It will also offer a bit better job security to employees by pushing the threat of bankruptcy out of the picture for now. Dilution is never fun, but things could easily have turned out for the worse.
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Categories: Financials · Wireless
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Rob,
The decline in FTWR’s stock price was an automatic reaction to the prospective share count and new balance sheet as set out below:
Yesterday FTWR had an enterprise value of approximately $416 million calculated as follows:
151 million shares @ $1.40
plus debt of $294 million
less cash of $89 million
So, today the prospective share count has changed as have debt and cash levels, but the enterprise value shouldn’t be impacted– so where should the stock trade? See below:
new share count 487 million
plus debt of $125 million
less cash of $75 million
Share price to get to $416 million in enterprise value = $0.75, and that’s where it is.
🙂 I’m sure their shareholders feel much better about it when you put it like that…
They’re lucky– if they had waited another year they likely get a bigger cramming. This was the only LMDS play that got funded and there may be a reason for that.
Tough place to be … the reverse split is indicative of more challenges ahead …