NorthStream Capital Inc. (“NorthStream”) believes that Sherritt International Corporation’s (“Sherritt”) proposed transaction to exchange its existing unsecured note obligations (“Existing Notes”) into new second lien notes (the “Transaction”) is insufficient and is unlikely to receive the required two-thirds approval of votes cast at the meeting of Debtholders. NorthStream does not plan to vote in favour of the transaction as presented.
The Noteholders are being asked to effectively forgive fifty percent of the amount contractually owed or $294 million and forego $19 million of interest income per annum or $145 million of cumulative interest income over 7.5 years. In exchange, Noteholders are being offered:
- an early consent fee of 3% of face amount which translates into a $18 million payment;
- a cash flow sweep that begins in October 2021; and
- an improvement of security to second lien status.
If this proposal is approved as stands, Noteholders will have given up over $400 million of value for no consideration.
While Noteholders are being asked to make material concessions, shareholders, whose rights are subordinated to Noteholders are not impacted by the proposal. The forgiveness of $294 million of debt and the value of the reduced interest expense totals $439 million which will effectively be transferred to shareholders. This is a material transfer of value to shareholders relative to the current equity market capitalization of $ 65 million. Shareholders are the primary beneficiary of this proposal as they retain all the upside potential from a recovery in commodities, while Noteholders are being asked to make all the concessions. This proposal provides shareholders value that represents a multiple of six-times the current market value, while Noteholders would forgive half of their contractual amount owed to them with no potential for additional recovery.
In response to this inadequate proposal, NorthStream has formed an ad hoc bondholder committee and would like to invite all current Noteholders to participate in a conference call on Tuesday March 3rd at 3:30 PM EST. The purpose of call is to unify both institutional and retail Noteholders in order to engage in constructive discussions with Sherritt to pursue a transaction that improves its capital structure and provides fair consideration to existing holders of the three outstanding note maturities.
A conference call for members of the ad hoc creditor committee and all current Noteholders will be held on Tuesday March 3rd, 2020 at 3:30 PM. To participate, please call 416-613-4651 prior to noon on March 3rd to register and receive login instructions.
About NorthStream:
Founded in 2016, NorthStream Capital Inc. is an independent alternative investment management firm specializing in event-driven opportunities in the Canadian and US credit markets.
NorthStream generates investment performance as a result of the firm’s thorough research process and expertise analyzing complex credits.
NorthStream has been recognized by the Canadian Hedge Fund for three Awards in the credit-focused category.
NorthStream is a holder of Sherritt’s unsecured debentures.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200228005298/en/
Contacts:
Managing Partner, Portfolio Manager
NorthStream Capital Inc.
416-613-4652
jeff@northstreamcap.com
