In July, back when the credit markets were merely horrible, Vonage announced a financing package to allow it to refinance its debt that comes due in December, and even then it was a brutal refinancing. Well, today Vonage announced the package has been renegotiated. Why? Well, I’m guessing it is because the original package ‘contemplated’ raising $30M from other parties to make it to $220M total, and that obviously didn’t happen. Given the state of the markets, you know the new package isn’t going to be much of an improvement.
In order to reach $220M, they rejiggered the terms such that the first lien is $130.3M, the second is $72M and no longer convertible. Sounds great so far, but Silver Point is now also providing $18M in the form of a convertible at a price of $0.29, which of course is a 66% haircut from yesterday’s close and amounts to 62M shares all by itself. That’s right, to raise a mere $18M, Vonage is now diluting its stock by 40%. The full-ratchet anti-dilution clause has been scaled back to a less drastic formula, but since the price is now $0.29 there was little point anyway. The interest rates on the first and second liens are not specified, and the final terms are apparently *still* being negotiated.
With this package, Vonage hopes to survive the winter. Given the financial crisis out there, I suppose that would be a worthy accomplishment - but it will serve as a warning to anyone who *needs* to access the credit markets right now. It ain’t pretty.
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