What are the implications when a company is trading under intrinsic value, loaded with debt, well below it's 52-wk high, and right around it's implied equity price from an LBO IRR analysis? My knee-jerk reaction is telling me to think that this company is trading close to it's liquidation value. Is that right? What are your thoughts?
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Better to look at how debt is trading to determine this.
basically, then.. it's not automatically a liquidation, but can be a turnaround situation, should an investor decide to come in and focus on recovering asset value. do you know how these sales work? does an investor just buy up the debt, with a small equity contribution?
I tend to be pretty cynical about this stuff, but it is likely there is some sort of negotiation going on and the equity holders have some insight into this. You can usually weight the probability of some sort of deal with the debt holders (assuming that is the case). Who knows what the outcome will be, though.
This has been happening a lot in the oil and gas industry...check out Bill Barrett Group or Bonanza Creek for how they negotiated with existing debt holders and existing equity holders walked away with some single digit ownership of the remaining entity on an enterprise value basis.
Investors could come in and do some sort of private placement to make debt holders whole, sometimes debt holders take ownership, as in the case above, sometimes it is liquidated and other times they go into a bankruptcy workout. I am not a credit/distressed guy, so I am not really familiar beyond the 1,000 foot explanation I just gave. Better to let the experts get in there...that is why there are distressed credit hedge funds!
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