Struggling under the burden of servicing high debts taken on to fund acquisitions made at the end of the boom times in 2007, and having cut its dividend, a large retailer needs to raise new equity. It does so quickly by placing a slug of shares with two cornerstone investors while simultaneously conducting a three-for-seven rights issue subscribed by existing institutional investors in a day and a half. Retail investors still have three weeks to decide whether to take up their rights at the indicated discount.
Successful completion of the deal allows the company to pay down nearly 30% of its debt and strengthens its hand in negotiations to refinance the remainder and extend maturities, enabling it to reduce principal in manageable stages stretching out to the end of 2012 instead of facing hefty maturity bulges in the next two years.
It sounds almost too good to be true, and is exactly the kind of deal companies in Europe dream of using to shore up their balance sheets and reduce leverage as slowing earnings make debt service more problematic.
You don’t have to live in dreamland to do such a deal: you just have to be the chief financial officer of a company in Australia.