SFK Pulp - Waiver on Covenant

[triedtestedand]

Sharper et al:

 

Looks like SFK got their waiver ... at a price.  Can you decode what the different landscape might imply?  Limitations to CAPEX are fairly straightforward, but some of the more technical stuff is beyond my simple reach.

 

http://finance.yahoo.com/news/SFK-Pulp-obtains-a-waiver-cnw-3209451357.html?x=0&.v=1

 

 

 

 

[SharperDingaan]

 

Keep in mind this is before the Q2 earnings come out.

 

06/30/2009 debenture interest was paid in cash. 12/31/2009 and 06/30/2010 debenture interest will be paid in shares if there is a material drop in the level of cash on hand. Nothing unexpected.

 

St Felicion will be financing maintenance CapEx from Black Liquor subsidies - which is much more significant than it might seem. Reluctant to suggest more, as we’d prefer not to steal managements thunder. 

 

Assume interest will now be roughly 5% on about 166M of CAD equivalent debt – 8.4M/yr. The bankers are agreeing to add this to the debt, & capitalization will increase net earnings by approx 9c/share over the next 12 months.  Again more significant than it seems, & we’d rather that management spoke to it.

 

There is an inference, & a growing incentive, to do some kind of equity issue or debt/equity conversion from 07/01/2010 onwards. Reluctant to suggest more but worst case, the debs get repaid in shares when they mature 12/31/2011

 

All in all, far better than we might reasonably have expected.

Management is pretty much earning their pay this year!

 

SD