bablu Posted April 21, 2009 Posted April 21, 2009 It seems PD is getting diluted by selling stake to AIMco and a rights offering ... it seems there may be about 30-40% dilution according to the plan... why the stock is down about 5 - 10% yesterday.. what am missing ? thanks for any insights.... here are the details... NEWS RELEASE PRECISION DRILLING TRUST ANNOUNCES COMPREHENSIVE FINANCING PACKAGE TO STRENGHTEN ITS BALANCE SHEET, REDUCE DEBT AND SUBSTANTIALLY REDUCE FUTURE INTEREST COSTS Calgary, Alberta, Canada – April 20, 2009 (Canadian dollars, except as noted) This news release contains “forward-looking information and statements” within the meaning of applicable securities laws. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the “Cautionary Statement Regarding Forward-Looking Information and Statements” later in this news release. Precision Drilling Trust (the “Trust”) and Precision Drilling Corporation (“Precision”) announced today a series of financing transactions to raise up to approximately $380 million which will be used to strengthen the Trust’s balance sheet by refinancing and restructuring the debt incurred in the acquisition of Grey Wolf, Inc. that was completed in December of 2008. A summary of the financing transactions is set forth below: • The Trust and Precision have entered into an agreement with Her Majesty the Queen, in Right of the Province of Alberta (the “Investor”), represented by Alberta Investment Management Corporation (“AIMCo”), pursuant to which the Investor has agreed to purchase by way of private placement: o $175.0 million aggregate principal amount of senior unsecured notes (“Notes”) of Precision bearing interest at 10% per annum and having an eight-year life; o 35,000,000 Trust units at a subscription price of $3.00 per Trust unit for gross proceeds of $105.0 million; and o 15,000,000 purchase warrants of the Trust entitling the Investor to acquire up to an additional 15,000,000 Trust units at a price of $3.22 per trust unit for a period of five years from the date of issue. • The Trust also intends to initiate a Rights Offering for up to approximately $103.0 million that will allow unitholders, including the Investor, to purchase Trust units at a price of $3.00 per unit in their proportionate ownership share on the same terms as the Investor.
woodstove Posted April 21, 2009 Posted April 21, 2009 The offsetting aspect is probably that the new financing brings in a strong backer, ensuring the company will survive with its present ownership structure (diluted, to be sure, but not taken over by debt-holders). The rights offering should almost certainly make shares available at substantially less than present market price. I don't hold any PD.UN at the present time. Besides market impact of Q1/09 slowdown in drilling activity in Western Canada, now we have the gap between 4.94 and 3.60-ish staring us in the face. The market may be efficient, but it can still be slow to react sometimes.
SharperDingaan Posted April 22, 2009 Posted April 22, 2009 Just keep in mind that Q1 results get released tommorrow, & there's very little reason why you'd pay more than the CAD $3.00 you would pay if you got them through the rights offering. SD
woodstove Posted April 22, 2009 Posted April 22, 2009 Oh, that rights issue is at $3.00 Cdn?! I hadn't realized. Even more of a discrepancy. I think it should be repriced given market price at which PD.UN has been trading. On the other hand, AIMCo wants to get their participation at agreed-upon price, and other investors have to be offered their rights at same price, so I imagine from AIMCo's perspective, they want to keep the issue price at 3.00. Probably AIMCo will be backstopping the rights issue, picking up any unexercised rights, so it will be a net gain for them. With all that going on, I cannot see how the price of PD.UN can stay near its present relative higher figure. I wouldn't short, no margin of safety given the potential for changes in rights issue price etc, but it sure doesn't seem like a sensible hold at prices well above rights price.
Uccmal Posted April 22, 2009 Posted April 22, 2009 I sold my small stake yesterday with the intention of buying back in at a lower price; perhaps a larger stake in mid summer when gas prices bottom out. Thanks SD.
ValueBuff Posted April 22, 2009 Posted April 22, 2009 It is probably rallying on the fact it was financial clarity. Im still holding for now...but id love to load up if she comes back down
bablu Posted April 22, 2009 Author Posted April 22, 2009 I wrote covered calls for 25% of my position and planning to write for 25% - 50% if this continues to go higher.. but still can't understand rights pricing at 3$ and currently trades at 5.50 ish..
JAllen Posted April 22, 2009 Posted April 22, 2009 It seems like the embedded rights are increasing the value of the shares. The higher they go, the more they are worth because with buying one you get to buy another at $3. I haven't sold any of mine yet buy might go the covered call route if there is a decent price at $7.5US.
SharperDingaan Posted April 22, 2009 Posted April 22, 2009 Look a little closer at the marketing. Most would think that there's more than a little gaming going on - 04/20 PDS announces new financing that will add 84M shares [35 issue+15 warrant+103/3 rights] Another 30% dilution. Yes - expenses will decline, but not by 30% - 04/21 CIBC released a bullish analyst report. 3 others released similarly bullish reports on the same day and the price increased $CAD 0.75, which reversed the prior days loss of $CAD 0.50. Notable is that these underwriters (who sold the last issue at 4.25, & then saw it drop < 3.00) were not involved in the 04/20 financing. - 04/22 PDS releases Q1 results. As expected, they weren't good. Yet the price closes up at $CAD 5.50 & suddenly we're hearing 2:1 deals (cause 5.5+3.0 right = 4.25 = same price as the last issue ?). The 50 day technical trading signals over the last 4-5 days are illuminating. - PDS just sold 30% of themselves at 3.00-3.25 - or about what it was actually going for before the runup began. Perhaps the message they were meant to hear is that if they'd listened to their underwriter, maybe they could have sold at 5.50 & only had 20% dilution? This only works if nobody 'calls' the underwriter, by selling in quantity through either the physical or derivative markets. PDS may well be turning around and warrant a premium over the 3.00 rights price, but 10% (3.60) is about the limit for a 2:1 deal (3.6+3)/2=3.30/3.00-100% = 10% Happy hunting Cheers SD
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