DFC: Capital Injection

Delta Financial announced its earnings and mentioned that it received $70 million of additional capital.

"First, we obtained a $60.0 million financing facility from an affiliate of Angelo, Gordon & Co., a leading alternative asset management firm. The financing is collateralized by all of our currently existing securitization cashflow certificates. As part of the transaction, Angelo, Gordon & Co. will receive warrants to purchase 10.0 million shares of our Common Stock with an initial exercise price of $5.00 per share, expiring February 2009, subject to extension if we do not obtain stockholder approval for the warrant issuance within 90 days of the closing date. The fair value of the warrants issued will be amortized to interest expense as a non-cash yield adjustment over the life of the associated financing facility."

"At the same time, we have agreed to issue $10.0 million of convertible notes to funds managed by Mr. Mohnish Pabrai, one of our largest stockholders," Mr. Miller explained. "The notes are convertible into an aggregate of 2.0 million shares of our Common Stock, at a conversion price of $5.00 per share. The exercise of most of the warrants and the issuance of all of the shares upon conversion of the notes are both subject to shareholder approval, which we intend to pursue in the near future."
So basically a hedge fund and Mohnish Pabri provided capital in return for some warrants and convertibles priced at $5. This is a low risk investment for Pabri but nevertheless it shows his confidence in this company. DFC's price right now is $4.87 and has a market cap of around $115 million. So the dilution is huge but necessary.

The question is how long DFC can survive on this capital. I'm thinking that DFC has 6 months to turn things around. If the situation is the same (or worse) by then, it's not going to be a pretty sight.

Comments

  1. AnonymousDecember 6, 2007 at 8:44 PM

    I am sorry to hear about DFC. I hope you did not have too much money on this one. Hopefully, the same fate would not befall ABK which I now own.

    John

    ReplyDelete

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