SINGAPORE - Pacific Radiance noteholders should reject the company's plan to redeem its bonds by issuing new shares, said OCBC.
"Noteholders deserve better information about the overall restructuring plan as well as how other stakeholders are committing to the reorganisation before taking both sizable haircuts and structural subordination," said its credit analyst Nick Wong.
He said that the trade-offs look "unbalanced" for noteholders, noting that noteholders will be taking a large implied haircut of over 50 per cent based on current market prices, as well as give up their seniority protection by becoming equity holders.
In contrast to the huge haircut on the bonds, existing shareholders are only diluted by about 35 per cent, he added. Furthermore, capital raising via rights issues or warrants would likely be part of the restructuring process, further diluting the equity stake the noteholders receive.
"Noteholders are effectively flying blind without knowing the other aspects of the restructuring," he wrote. "Comparatively, for the other recent restructurings in the offshore and marine space, the restructuring plans are either more holistic (if haircuts are required on noteholders) or noteholders benefit from remaining (at least in part) senior unsecured creditors."
Pacific Radiance announced on Feb 2 a consent solicitation exercise for a revised restructuring plan with better terms for holders of its S$100 million 4.3 per cent medium-term notes.
In its preliminary proposal, Pacific Radiance offered full conversion of the notes to new equity, at a rate of three new shares for every S$1 held.
Under the revised proposal, also for full conversion, noteholders will receive 19 new shares for every S$5 held, which equates to 3.8 shares for every S$1, or 26.3 Singapore cents per share.
Still, OCBC recommends noteholders accept the second resolution of the consent solicitation exercise which seeks to waive events of defaults and financial covenants, saying Pacific Radiance might tip into technical default otherwise.
