Telegraph article seems very accurate
Does it not at all seem odd that shortly after MY floated on AIM and eliminated all their debt (much of which was owed to their founders) that the airline goes down in flames and none of the original investors are willing to prop it up? Seems almost criminal that all the original investors received full payouts of their investments immediately after the AIM closing. In one case the mid-year earnings release mentions a loan to a related-party for 18.5% interest.
What exactly did these AIM investors believe they were buying? The chance to transfer $50m of debt or the opportunity to invest in the airlines furture? The money didn't go to their future.
To see more, read the notes to consolidated financial statements (http://www.digitallook.com/news/rns/...2-231550/MAXJ-Interim_Results.html) Sorry about the long link, I never remember how to condense it. I've also made some interesting notations below.
Usage of proceeds from the AIM listing:
MAXjet raised $93.7 million after expenses and was admitted successfully to AIM in June 2007. In connection with the AIM offering all preferred stock converted to common and all debt was retired. Prior to admission the Company had outstanding $6.8 million of preferred stock, $9.7 million of convertible debt (Term A, including PIK interest), $30.5 million of non-convertible debt (Term B) and a $1.5 million credit facility.
After retiring debt, the Company had $50.3 million in unrestricted cash as of 30 June 2007.
Impact of all the cancellations:
Passenger Service Expenses. These expenses increased from $3.3 million in the first half of 2006 to $7.8 million in the first half of 2007. During late May and June 2007 one of the Company's three active B767s was out of service for an extended period. MAXjet continued to operate all scheduled markets through this period. MAXjet contracted with two charter airlines to operate VIP-configured aircraft on a wet-lease basis on the Washington route.
Were these interim financing moves fiscally responsible to the company's bottom line or the shareholders who acquired the debt? See the example of the 18.5% interim note adjustment that was initiated when it was known the AIM float was to occur.
On December 31, 2006, the Company signed an Amended and Restated Credit Agreement (the "Agreement") with existing and new lenders that became effective on January 12, 2007 following a required equity financing of at least $7 million as described below. Additionally, the Agreement was amended in April 2007 to extend the maturity date of the loans, as well as other modifications ("April Amendment"). The amended terms are listed below.
The Agreement consisted of segmented terms as follows:
• Term A Loans consisting of $9 million in new financing with an option to increase borrowings by an additional $2 million; and
• Term B Loans consisting of; (i) senior unsecured notes in the amount of $27 million issued in September 2006; (ii) an additional note for $2 million with the same terms as the senior unsecured notes; and, (iii) $1.5 million of the $3 million loan received in July 2006 from two stockholders of the Company used as a deposit to secure the purchase of two aircraft (see Note 3 - Leases, Including Leases with Related Parties).
Thus, the Agreement covered $11 million of new debt (with a provision to increase this amount by $2 million) and $28.5 million of existing debt.
The Loans were amended to bear interest at 18.5% as follows: "Until the earlier of (i) the date of the Qualified IPO and (ii) June 30, 2007, Interest on the Term B Loans shall cease to bear cash interest on the unpaid principal amount thereof and such Loan shall instead bear payable-in-kind interest ("PIK Interest") on the unpaid principal amount thereof at a rate of 18.5% per annum, which PIK Interest shall accrue and be added and capitalized to the principal outstanding balance of such Loan on a monthly basis."
I can't imagine that the institutional investors who invested in the company will go away without inquiring about the obvious.... where did all the money go? Why were the same investors who were repaid after the AIM float unwilling to come to the table to salvage their own company? Clearly they knew what a poor investment it would have been.