"North American Palladium: Debt Analysis And Cash Cost After The Interest Change To The BAM Loan"
Jul. 8, 2014 12:26 PM ET
Summary
•PAL today repaid $16.2 million in interest to BAM at a cost of $7.2 million. However, the interest is now down to 15% from previously 19%.
•Is it making any financial sense to spend $23.4 million in cash for PAL now?
•This move seems illogical and will probably force PAL to use another equity financing before the end of 2014.
North American Palladium (PAL) has repaid today $16.2 million in interest to BAM and paid a pre-payment fee of $7.2 million. It is a substantial change that will reduce interest to 15% starting September 30. Let's discuss these three important topics:
1 - What is the total debt as of July 2014, including options and warrants?
2 - What is the real all-cash cost?
3 - Commentary about the interest payment to BAM.
1 - What is the debt after the last payment on July 2014.
1 - The bulk of the money owed comes from the Brookfield's [BAM] loan (06/07/2013) and it is a huge cost. The amount due is now $173.2 million at an interest going down from 19% back to 15%. The company repaid $16.2 million and had to pay the "prepayment fee" based on the covenants. Here is the basic calculation:
Prepayment fee = 16.2 x 0.15 x (July 2014/July 2017) /365 = $7.2 million.
Yes, PAL was charged $7.2 million to be able to repay $16.2 million and reduce the interest from 19% to 15%. The company will have to pay interest quarterly to BAM in order to keep the debt amount unchanged at 15%. Is it really worth it?
Here is an excerpt of the last press release:
“The outstanding balance under the senior secured term loan is approximately US$173.2 million on July 1, 2014.
2 - C43M ($40.33 million) in debenture at 6.15% due September 2017.
3 - $36.4 million of a $60 million operating line of credit due July 4, 2014. From the 6K filing Q1 2014, results:
“The Company has, subject to a borrowing base cap, a US$60.0 million credit facility that is secured by certain of the Company's accounts receivables and inventory and may be used for working capital liquidity and general corporate purposes and is due July 4, 2014. As of March 31, 2014, the borrowing base calculation limited the credit facility to a maximum of US$38.6 million of which US$36.4 million was utilized. The Bank of Nova Scotia extends the LOC by an additional year on the same terms and conditions, which includes US$ based loans interest at LIBOR plus 4.5%, to July
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