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Author: Pituophis Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2302  
Subject: The Good, The Bad, and The Ugly Date: 10/2/2001 10:13 PM
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THE GOOD
Pretty exciting, huh? Financing done. 115% pop. More tomorrow? It's not too often that you wait to hear whether you're going to double your money or lose it all...better than the casino. Sorta strange how they released that first news with no detail, then dribbled out the rest, releasing the bad news later...good PR hasn't been an MFN strong point, but they did a good job today...

...but what does in all mean...been trying to sort through the BS and mumbo-jumbo - here it is, the best I can figure it out:

The basics ( http://www.businesswire.com/webbox/bw.100201/212750864.htm :
- a $150 million note purchase facility led by Citicorp, USA;
- $230 million in convertible debt financing, of which $180 million is
being purchased by affiliates of the Company and $50 million is being
purchased by a subsidiary of Verizon Communications (NYSE:VZ); and
- $231 million in vendor financing.

The Company also completed agreements with other Company vendors to modify
payments of the Company's pre-existing obligations to such vendors.


MFN also announced that they expect to become EBITDA positive by next year. This was some really GREAT NEWS that sorta got buried among today's other events and probably the best reason to be long this stock...

THE BAD
Well, not so bad really. MFN revised revenues down a little. I'll take earnings over revenues any day. Hopefully MFN's projections are conservative, projecting a severe economic downturn, and if the economy gets better faster than most people think...

Previous
New Normalized Normalized
New Revenue Previous Revenue EBITDA Loss EBITDA Loss
Guidance Guidance Guidance Guidance
Quarter (millions) (millions) (millions) (millions)
----------------------------------------------------------------------
Q3 2001 $91 - $93 $107 - $115 ($31) - ($35) ($31) - ($35)
----------------------------------------------------------------------
Q4 2001 $100 - $103 $127 - $137 ($3) - ($9) ($19) - ($22)
----------------------------------------------------------------------


THE UGLY
The Devil in the Details
Principal Financing Terms


The $150 million note purchase facility will have a five-year term. The
n otes will bear an interest rate of LIBOR + 5.5%, or the base rate + 4.5%.
Parties providing the financing have been issued warrants to purchase 203.5
million shares of Metromedia Fiber Network Class A common stock at an exercise
price of approximately $0.54 per share.
The $230 million of 8.5% Convertible Senior Notes due 2011 will be
convertible into shares of Metromedia Fiber class A common stock at an exercise
price of approximately $0.54 per share.
The $231 million of vendor financing will have a five and one-half year term
and will bear an interest rate of 14%. MFN has issued this vendor a warrant to
purchase 84.8 million shares of its class A common stock at an exercise price of
approximately $0.54 per share.
The Company is also issuing approximately 121 million shares of class A
common stock, $89 million of convertible notes convertible into shares of
Metromedia Fiber class A common stock at an exercise price of approximately
$0.54 per share and warrants to purchase an additional 47.3 million shares at an
exercise price of approximately $0.54 per share to vendors that agreed to
exchange payables for equity.
Finally, MFN and Verizon adjusted the conversion price on $500 million of
the 6.15% Convertible Subordinated Notes due 2010 from $17 per share to $3 per
share.


Man, this is part I had to stare at for awhile. While we as yet do not know some important details, by my calculations, IF all notes were converted and all options exercised then total outstanding shares would be 1.76 billion (Dumbtrader - where did you get 500M?) I think this must be close to right, cause the ~600M shares currently outstanding represent ~37% - a number everyone seems to be throwing around...

So how dilutive is this? First, the lenders, vendors, and others receiving options (warrants and convertibles) do not HAVE TO excercise those options - but what would you do if you had an options to convert a 6-8% note for shares of a stock currently trading at $0.71 for $0.54??? So unless Muffy goes back to a quarter, these shares will most likely be issued. Anyway, these shares are not being given away but sold at $0.54 so as they are issued there will be a corresponding rise in cash which hopefully will be converted to tangible assets. So obviously they are not 100% dilutive to book value, but only dilutive by that percentage that the share price at the time they are issued is above $0.54. Is everyone confused? I know I am.

It does appears that 121 M shares are being issued like a loan fee - like we needed that money so bad that we are giving you 121 M shares! Yeah, MFN pretty much mortgaged the farm, but it may work out.

As to what the Kaufman Bros. ANALyst was talking about with the with the "sell at $1 because of share overhang" BS, I haven't a clue. Could there be a provision that says that converions can't take place below $1??? I don't know. There are undoubtedly some details we don't know yet.

Hope this helps.

mike
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