The equity portion granted to lenders under Global Crossing's recovery package is giving the company's bank debt an extra boost. The bank debt has been trading in the 241/2 context up from the 213/4-231/2 range, where the paper had been moving for the last couple of months. The trading levels even surpass the 22.7 cents on the dollar estimated recovery allotted to lenders' with $2.26 billion in claims under the company's plan of reorganization. The estimated recovery assigns a book value of $10.16 per share to lenders' 2.4 million shares, or 6% of the equity in the reorganized company. "A lot of these emerging equities are being valued and we are watching the whole market trade up," one dealer noted. The book value is the per share price being paid by Singapore Technologies Telemedia for its 61.5% equity interest.
The recent valuation attributed to the bank holders' equity is not taken from the book value, however, but rather it is derived from the company's bonds, which are trading around the 9 level, dealers explained. The bonds are held at the Global Crossing Holding level. The bondholders, with $3.8 billion in claims, are slated to receive 24.67% of new Global Crossing equity, the second largest slice next to ST Telemedia. "I believe that the back-end implied equity valuation is more easily seen through the bonds than the bank debt. There is also less 'noise' in such an implied valuation," one buysider said. Considering where the bonds are trading, the bank debt is worth 25 cents on the dollar or higher, dealers explained. There may even be more upside to come, according to one trader who suggested the bonds could be worth as much as 12-15 cents on the dollar. This implies more value for bank debt holders as well.
The market valuation also suggests that ST Telemedia's equity portion is worth considerably more than the $250 million the company contributed to acquire its majority interest. According to the market capitalization, which is about $1.4 billion considering where the bonds are trading, ST Telemedia's equity is worth around $865 million, an analyst explained. But ST Telemedia did not just get a "golden key," qualified one dealer. The company still requires a significant amount of maintenance capital expenditure, he noted. And whether the telecom industry has fully turned around, remains to be seen. "There still is a question as to how much capacity is needed," one trader said. But on the plus side, some people believe that there could be some M&A in that space, he added, noting a recent deal whereby Reliance Gateway Net Private will acquire FLAG Telecom Group. In addition, he said, projections for telecoms are off the charts.
Global Crossing was able to receive clearance for its last regulatory hurdle two weeks ago when the company's request to transfer control to ST Telemedia was approved by the Federal Communications Commission. Global Crossing received its long awaited approval from the Committee for Foreign Investment in the U.S. in September. The company is now expecting to emerge from bankruptcy after concluding customary legal closing conditions of the purchase agreement and administrative tasks associated with the bankruptcy process, explained Global Crossing officials.