For months, LDK Solar (NYSE: LDK) has been putting off debt payments to creditors in the U.S. with what it calls a forebearance arrangement. That's a nice way of saying, we'll pay you when we want to pay you.
Finally, this morning it announced a plan to creditors who own US$-Settled 10% Senior Notes due 2014 who haven't been paid interest due since August 28, 2013. The offer is both confusing and a slap in the face to investors.
If bondholders choose to cash out, they could receive $0.20 for every dollar they're owed through the end of this year. If they choose to convert to new securities they could get the following.
- 8.736% of their claim in LDK Solar shares at $1.586 per share, which is 13.2% lower than the stock's price today.
- The remaining 91.264% of what they're owed would be paid in convertible bonds due December 31, 2018 with an interest rate of 90% of the Shanghai Inter-Bank Offered Rate ("SHIBOR"), which is currently 3.513%. The interest would be either added to what's owed or paid in shares, not paid in cash.
- In the first year, the bonds could be converted to shares at $20 per share, a 1,327% premium to today's price. In the second year, the 20-day trading price of shares would be the conversion price, with a limit of 25% of bonds convertible during the year. After that, the conversion price would be the volume weighted average price of the 20-day trading period with no limitations.
- Most importantly, the bonds would cross-default if holders of Series A Redeemable Convertible Preferred Shares of LDK Silicon & Chemical Technology Co., LTd. don't choose to extend their convertible notes or convert to LDK shares.
Whew, got all that?
What it means for you
LDK is in such bad shape and U.S. debt holders have so little recourse that the company is offering $0.20 on the dollar for debt or the right to cross your fingers and hope the company can survive in exchange for debt.
Keep in mind that this would only address $265.4 million of debt on the balance sheet. There's another $2.5 billion of mostly short-term debt to deal with, mostly from state-run banks.
I see this offer as an offer to keep the company alive for a year or so instead of liquidating the way Suntech Power was forced to. There's no reason for investors to buy this stock now because the company is in such bad shape. This last ditch offer to debt investors show just how bad things have gotten.
