LPX may have averted bankruptcy in the last moment at the expense of a few gullible investors, who ended up purchasing the bond issue LPX had been marketing for over 5 months. Bank of Countrywide Lynch and Goldman have to be given props for this one as the Stardust odds for a successful LPX bond placement were roughly 10 to 1 against. LPX ended up placing $375 million of 13% Notes due 2017 with 15% warrant coverage for some hypothetical IRR amounting to 19%... We say hypothetical as defaults tend to have a substantially negative impact on IRR calculations. The company will end up pocketing a mere $282 million, the proceeds of which it will use to repay 63% of its 8.875% Notes due 2010. What happens to the remaining 37% is unclear. The balance it will use for general corporate purposes, which hopefully this time does not include $50 million investments in Latin American OSB mills. Good thing for BofA and GS that they get paid on the notional not on the discount value. This makes their customary 4% fee more like 5.25%... Seeing how their only other source of IB revenue is to issue FDIC backed bonds to each other, this is probably a good thing.
If the original issue discount is any indication of where distressed companies should expect to place debt, this is definitely bad news for the over $185 billion more in HY debt that is rapidly approaching maturity, as companies will have to find alternative sources of cash for at least 25% of the balance to notional.
Sphere: Related Content
Print this post