What is mgmt plan? If they do not sell then bankruptcy seems likely...they could probably sell to avoid that potential bankruptcy but would it be worthwhile for them to sell? it appears the last CEO favored bankruptcy. serious answers only. thx.
Serious answer is that they probably can't find anybody to buy the company. The minimum price tag to buy the company outside of bankruptcy is well in excess of $1 billion which would cover the debt, other liabilities, a little something for the shareholders, and costs of the transaction. Then there is the cost of expanding to other markets, the cost associated with getting more automation in the processing to lower costs, and so on. My guess is $1.5 billion, minimum, just to play the game. The acquiring company needs to earn a return on that $1.5 billion+ investment, and most pharmas have a required return of at least 10%. Can DNDN return $150 million a year in positive operating cash flow, after tax, when the company is not at breakeven? Not likely, so it becomes a very dilutive acquisition for the buyer and the BUYER's shareholders would be looking to lynch the management team that agreed to such a deal. That is why it is so hard to find a buyer. The best indicator is the market prices of the bonds, which are now selling for 63 cents on the dollar. That values the company at approximately $365 million. Best case is a prepackaged bankruptcy that wipes out the debt, lets the shareholders keep something (think 10%), and the rest of the liabilities are converted to equity. Bond holders and other creditors would own 90%, but the company would live on in some form and may employees would still have jobs. The alternative is piecemeal liquidation with individual bits sold off to the highest bidder. That would be bad for shareholders, who get nothing, and the employees, most of whom get fired. There is only so much that can be done at this stage, so the realistic view is to find the best of some fairly ugly alternatives and take the bitter medicine.
In bankruptcy there are various classes of creditors with various priorities. Groups with similar priority get lumped together and each group votes on whether to accept the bankruptcy plan. Practically speaking, DNDN has the secured bond holders (who come first in any plan) and everybody else. If the bond holders agree to accept less than 100% of what they are owed, a bankruptcy judge can deem the plan accepted even if other creditor groups disagree (known in legal terms as a "cram down"). Case over. In a prepackaged deal, the main creditors and the company agree IN ADVANCE how the company will be divided. In other words, the reorganization plan is negotiated and approved by the major creditor groups before the bankruptcy is ever filed (it is usually the other way around). The advantage is certainty in that the major creditors know exactly what they are going to get, there is no need for protracted legal wrangling, and there is a fast exit from bankruptcy with the minimum effect on the business. Essentially what happens is that management walks into court the day after filing bankruptcy, presents the court the agreed plan, all the major creditors stand up and support it, and the bankruptcy is over. Now there are a lot of legal details I left out of that story, and it is not quite so neat and tidy, but the case is relatively simple to conclude. The benefit is certainty for all. The bond holders don't really WANT to own DNDN so if instead they can get a freely trading share in a new public company that is good for them, even if they have to throw the shareholders a bone and let them keep 10%. Shareholders an other creditors are not completely wiped out (which frankly is the alternative in Chapter 7) so they all have an incentive to cooperate. This all presumes that everybody acts like grown-ups and plays nice-nice. If one group thinks they can do better by going into an adversarial mode, then that becomes a problem for all. The board has tried to find a buyer and failed, and tried other strategies to save the company and failed on that as well. The CEO likely has marching orders to negotiate the best possible deal with the bondholders such that the shareholders are not totally wiped out (i.e. so that the board will not get sued). If he is successful, you will see a prepackaged bankruptcy sooner rather than later. If he is not successful, the company will limp along until early 2016 at which point it will have to declare bankruptcy, the bondholders will take over the company 100%, and DNDN will get sold to the highest bidder for whatever remaining value it might have. Better for all concerned to get it over with while there is still some value to the business.
But how do the new owners who are the past creditors know how to run a business? Are they now the ones who make any profits the company makes? It remains DNDN the public company?
The new company works just like the current one; the parties recruit a board of directors with relevant experience and the board recruits the management team. Most of the executives will be gone, but many of the other employees with specialized knowledge (like those that run the production facilities) keep their job. The difference is that if the company is liquidated the creditors, which in this case is just the bondholders, get the raw assets in exchange for their debt. The bond trustees must then figure out what to do with them. While that was happening, a lot of the best employees will leave and there would be negative effects on the business (you can bet Zytiga and Xtandi salesmen would mention the company's turmoil to urologists and oncologists). In an agreed reorganization the creditors get shares in a new public company and can choose to keep them or sell them. The trustees would have a much easier time if their job was limited to hiring an executive search firm to identify potential board members. There would still be an impact on the business, but the process is far less disruptive. As for those who say none of this will ever happen, I suggest they go back to grade school and learn some math skills. If the company were profitable already (which it is not) it would have to earn and save into the bank $2 million EVERY BUSINESS DAY from now until the debt comes due to survive. That is not $2 million in sales, that is $2 million in positive cash flow which means that the company has to sell the product, cover costs of production and all expenses AND collect, in full, the accounts receivable. This has to happen today and every day, without fail, for the next 15 months. Does the market doubt this can happen? As I write this, the yield on those bonds is up to 41%, which is what a bondholder requires in return to hold a DNDN bond, one that is secured and first in line to take the assets in a bankruptcy. In comparison, US Treasury debt yields slightly more than 1% and investment grade corporate bonds are around 3%. Denial is not just a river in Egypt.
Please read the title of this thread and stop desecrating it. It said no agenda. The person or people who are taking the time to help sounds like they know what they are talking about. Your posts are adding nothing of your opinion about the question posed. If you have an opinion on the question posed, please answer or else please go away. Right now you are driving people away. Everyone can decide for themselves the legitimacy of posts.
I am the OP and trying to find answers, but even I know that even though corporate debt is unsecured, there is a place in line and the bondholders are at the front of the line. What exactly are you trying to say?
Thank you for the information. The bond seems like a good, albeit risky way to go. Stock seems like a fool parting with $ scenario.
In immediate term, this company is in no risk of bankruptcy. If they file bankruptcy now, shareholders will sue their pants off. The note due 1/2016, today is 10/2014, it's over a year go. company's still solvent, and about to turn a profit from last quarter. Best scenario, would be to refi that debt to a more market interest rate such as 6-8% percent, 5 year balloon term. \\ amor for 20 years. Provenge is approved for Eu and about to launch. Co has been aggressive cutting costs and it's paying off. automation process, etc. This co has got al ot of values left. value anywhere from 5-10 bucks easily. This still the only approved fda immutherapy on the market, and for god's sake, it's the dead cancer.
This is what the company said on 8/11/14: "Based on our currently anticipated operating results, however, and even assuming the realization of future expense reductions that we plan to make and product revenues that we forecast, there is a significant risk that, while we believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will not be able to repay or refinance the 2016 Notes. Accordingly, we are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon." What is it that you know that the company does not know about the chance of a refinance or that the company is in "no risk of bankruptcy"?
That would certainly fix the problem, but how exactly is DNDN going to get a 6-8% rate of interest, which is what investment grade companies pay? The best surrogate for "market interest rate" is the current yield on the notes, and right now the market demands a 44% yield to hold DNDN paper which, if it were rated, would be Grade D junk debt (for reference, CCC rated corporate bonds, which are also in the junk category, yield 9.3%).
