Otelco Inc. Emerges from Pre pack Chp 11
Otelco Inc. is an Rural Local Exchange Carrier (RLEC) that recently emerged from bankruptcy. Their current symbol is NASDAQ:OTEL.
While the company was in bankruptcy, the company's IDSs were still trading on the Nasdaq and Toronto exchange under the symbols OTT and OTT.UN respectively. They entered Chp. 11 with a pre pack. Under this plan, the IDSs got exchanged into 85.2 % of the total equity. Good play for people that saw them go from 1.60 to north of 2.50.
Potentially the equity value could be called 42.5 million (using an EV/EBITDA multiple of 4).
Looking up OTEL's closing price of 11.00, with 2.87 million shares outstanding the market cap is 37.93 million. You might think, wait that math's not right. On the contrary, OTEL only represents the class A shares worth 92.5% of the total equity or 31.57 million.
The class A shares have not been diluted by the class B shares conversion, nor the Management Equity Plan. The class B shares can be converted into 232,780 class A's and the Management Equity Plan will comprise of an additional 344,859 shares, leading there to be a total of 3,448,587 Class A shares outstanding.
42.5 million / 3,448,587 turns out to be $12.32. Not much margin of safety with a price of $11.00,
There still might be an opportunity though.
Besides the deal at 1.60, you should have expected a sell off immediately once OTEL started listing. Why? Because the the holders of the Bachelor's Bonds most likely didn't want to hold the new equity, or maybe they legally couldn't. The holders of the Bachelor's Bonds received about 7.3% of the new equity, or 209,510 shares. During these first few days, you could have picked up shares for around $9.00 or a market cap of 31 mm fully diluted.
After 6 days of trading for OTEL, only a total of 116,453 have changed hands. I'm not saying all of the holders of the Bachelor's Bonds will sell, but who knows there still may be some more. It is an interesting company to keep an eye on. Good luck to all.
While the company was in bankruptcy, the company's IDSs were still trading on the Nasdaq and Toronto exchange under the symbols OTT and OTT.UN respectively. They entered Chp. 11 with a pre pack. Under this plan, the IDSs got exchanged into 85.2 % of the total equity. Good play for people that saw them go from 1.60 to north of 2.50.
Potentially the equity value could be called 42.5 million (using an EV/EBITDA multiple of 4).
Looking up OTEL's closing price of 11.00, with 2.87 million shares outstanding the market cap is 37.93 million. You might think, wait that math's not right. On the contrary, OTEL only represents the class A shares worth 92.5% of the total equity or 31.57 million.
The class A shares have not been diluted by the class B shares conversion, nor the Management Equity Plan. The class B shares can be converted into 232,780 class A's and the Management Equity Plan will comprise of an additional 344,859 shares, leading there to be a total of 3,448,587 Class A shares outstanding.
42.5 million / 3,448,587 turns out to be $12.32. Not much margin of safety with a price of $11.00,
There still might be an opportunity though.
Besides the deal at 1.60, you should have expected a sell off immediately once OTEL started listing. Why? Because the the holders of the Bachelor's Bonds most likely didn't want to hold the new equity, or maybe they legally couldn't. The holders of the Bachelor's Bonds received about 7.3% of the new equity, or 209,510 shares. During these first few days, you could have picked up shares for around $9.00 or a market cap of 31 mm fully diluted.
After 6 days of trading for OTEL, only a total of 116,453 have changed hands. I'm not saying all of the holders of the Bachelor's Bonds will sell, but who knows there still may be some more. It is an interesting company to keep an eye on. Good luck to all.
