Debt for Shares: Fairfax Financial Holdings Ltd. Buys AbitibiBowater Inc. Shares
GuruFocus premium membership data shows that as of March 13, 2008, Faifax Financial Holdings acquired 36.9 million shares of AbitibiBowater Inc. common shares.
According to its filing with SEC, Fairfax subscribed to an aggregate of $100 million of First Lien Notes and 63.5 million Series D Warrants as part of the recapitalization plan. Since Fairfax’s commitment constitutes a “backstop” commitment, Fairfax will receive a commitment fee equal to $50 of First Lien Notes and 53.895 Series A Warrants, 53.895 Series B Warrants and 53.895 Series C Warrants for each $1,000 of committed amount, which fee will be paid only in the event the Recapitalization is completed.
On March 13, 2009, AbitibiBowater Inc. (ABH) announced a recapitalization plan. The plan will convert $2.9 billion debt into a combination of $1.1 billion new notes, 86.7 million shares, and 230.7 million warrants to purchase shares in phases at different times. The company also will raise $350 million new money for $385 million of first lien notes and 222 million warrants.
As part of the recapitalization, AbitibiBowater is also selling its 60 percent interest in Quebec's Manicouagan Power Co, a generator of hydro-electricity, to provincial government-owned Hydro-Quebec for C$615 million ($484 million).
"The (recapitalization) transaction offers substantial benefits to AbitibiBowater, increasing its financial stability while also reducing the company's annual interest costs and improving overall liquidity," Chief Executive David Peterson said in a statement.
The company provided a supplementary announcement to its recapitalization plan on March 16, 2009. At the time, the company received support from about 39% of the debt holders involved.
AbitibiBowater was created 16 months ago by the merger of Canada's Abitibi-Consolidated and U.S.-based Bowater, but the merger did not entirely consolidate the two companies' financial structures.
ABH is traded at $0.65 per share as of today (March 26, 2009), below the exercise price of the warranties (depending on the series, all above $1.00). If and when all the warrants are exercised, the current shareholders will be diluted by about 90%.