11.25
CTL announced it has commenced an exchange offer for its US$354 million
8 5/8% senior notes due in 2011. Based on the pre-deal closing share price,
we estimate CTL is offering existing debt holders $0.80 on the dollar, made
up of new secured notes and stock.
If successful, the exchange offer will significantly improve CTL’s financial
flexibility. In particular, management will have dealt with its most pressing
debt maturity by pushing it out from 2011 to 2016, while interest expense
is expected to fall by just under $6 million.
In conjunction with the exchange announcement, CTL also indicated it plans
to issue $100 million in rights to existing shareholders following the
completion of the debt exchange. While this will improve liquidity, the rights
issue will severely dilute non-participating shareholders.
we estimate that the effect of both transactions, CTL’s S/O will increase by 117% and the
transaction will be neutral to valuation, assuming a stike price of $0.285/sh.
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