Debt for equity: What does it mean?

[Alicky Ranks]

I often read about Hearts swapping debt for equity in order to keep their mammoth debts at bay. How does this actually work? ie how can a debt ever be written off by swapping it for something? How does the person you owe the debt to actually benefit from such a move?

[Peevemor]

I often read about Hearts swapping debt for equity in order to keep their mammoth debts at bay. How does this actually work? ie how can a debt ever be written off by swapping it for something? How does the person you owe the debt to actually benefit from such a move?

Basically it's giving the bank shares in the company in lieu of money that you owe them.

In HoMoFc's case it's a bit more complicated, given that the debt is owed to the same group that own the club, which effectively amounts to the debt being written off.

[The_Todd]

Bits of debt are swapped for shares in HoMFC, so Ukio/UBIG/Vlad whatever own more and more of the club. The stadium itself is probably next.

[StevieC]

Debt for equity: What does it mean?


That you're up s**t creek without a paddle?

:dunno:

[Andy74]

In a company worth nothing it means nothing!

Hearts couldn't pay back a debt of £40m even if they sold the land and every player.

So, whether you are due the cash in terms of a debt facility or because you are a shareholder looking for capital to be returned it all works out the same way. You don't get it back.

This is where I don't really get this anymore. Yes, they get the interest from the debt, yes Vlad can pocket transfer fees now and again but these businesses are now owed serious cash from Hearts, way more than they could recoup by getting hands on the land and selling it.

[Caversham Green]

In the case of HoMFC it's actually a very good deal for the debtor company since the creditor already owns virtually all of the equity.

To illustrate: Suppose company H has already issued 100 shares of £1 each, of which company U owns 95. H also owes U £10. Instead of paying the £10, H issues another 10 shares (nominally worth £1 each) and gives them to U - thereby "settling" the £10 debt. U now owns 105 of the 110 shares in issue, which is a slightly higher percentage than the original 95%, but is not particularly significant since it had virtually total control in the first place.

It looks like the proposed issue this time will be to raise capital for the new stand, rather than to write off debt though, so it's not really DfE unless other figures are also included.

Hibs did this back in 1999 when the holding company sold ER back to the club at a valuation of £6m for £2.5m cash and £3.5m worth of new shares.

[Caversham Green]

That you're up s**t creek without a paddle?

:dunno:

Pretty much, particularly in the case of the last issue, where £12m was virtually written off - it looked like a panic measure because they had gone over their authorised borrowing threshhold. Doing it once could be seen as a rescue package, having to do it again reeks of gross mismanagement.


In a company worth nothing it means nothing!

Hearts couldn't pay back a debt of £40m even if they sold the land and every player.

So, whether you are due the cash in terms of a debt facility or because you are a shareholder looking for capital to be returned it all works out the same way. You don't get it back.

This is where I don't really get this anymore. Yes, they get the interest from the debt, yes Vlad can pocket transfer fees now and again but these businesses are now owed serious cash from Hearts, way more than they could recoup by getting hands on the land and selling it.

I have to agree with you Andy. Vlad either has a masterplan which includes ownership of a basket case SPL club, or he doesn't really know what he's doing. Right now my money's on the latter.

[IWasThere2016]

In the case of HoMFC it's actually a very good deal for the debtor company since the creditor already owns virtually all of the equity.

To illustrate: Suppose company H has already issued 100 shares of £1 each, of which company U owns 95. H also owes U £10. Instead of paying the £10, H issues another 10 shares (nominally worth £1 each) and gives them to U - thereby "settling" the £10 debt. U now owns 105 of the 110 shares in issue, which is a slightly higher percentage than the original 95%, but is not particularly significant since it had virtually total control in the first place.

It looks like the proposed issue this time will be to raise capital for the new stand, rather than to write off debt though, so it's not really DfE unless other figures are also included.

Hibs did this back in 1999 when the holding company sold ER back to the club at a valuation of £6m for £2.5m cash and £3.5m worth of new shares.


In a company worth nothing it means nothing!

Hearts couldn't pay back a debt of £40m even if they sold the land and every player.

So, whether you are due the cash in terms of a debt facility or because you are a shareholder looking for capital to be returned it all works out the same way. You don't get it back.

This is where I don't really get this anymore. Yes, they get the interest from the debt, yes Vlad can pocket transfer fees now and again but these businesses are now owed serious cash from Hearts, way more than they could recoup by getting hands on the land and selling it.

Spot on gents! - why would one be grateful for an increased % of a liability (which is what HoMFC is) :greengrin

[ballengeich]

I often read about Hearts swapping debt for equity in order to keep their mammoth debts at bay. How does this actually work? ie how can a debt ever be written off by swapping it for something? How does the person you owe the debt to actually benefit from such a move?

The move makes sense in a business which is struggling in the short term, but has good long term prospects. It would usually involve a business which has borrowed money for expansion, but has temporary cashflow difficulties.

Say a business is finding it difficult to pay £100,000 a year in interest now, and may default. If the lender thinks that in 2 or 3 years time the company will be prospering and able to pay £200,000 per year in dividends on shares, then in the long-term the lender benefits by taking equity in place of the debt and getting these dividends instead of interest.

How this will ever work in Gorgie is a mystery to me.

[johnrebus]

But how long can this go on for?

It is not inconceiveable that Hearts could owe themselves over £100m in two or three years or so?

And if this is truly a Vlad Masterplan, why doesn't he just go the whole hog and bring in the World Cup stars and build the Uberstand?

Does it really matter what the level of debt is if the parent company keep doing this equity ' thingy ' ?

In other words.......,


When does the :******:

:devil:

[whiskyhibby]

But how long can this go on for?

It is not inconceiveable that Hearts could owe themselves over £100m in two or three years or so?

And if this is truly a Vlad Masterplan, why doesn't he just go the whole hog and bring in the World Cup stars and build the Uberstand?

Does it really matter what the level of debt is if the parent company keep doing this equity ' thingy ' ?

In other words.......,


When does the :******: happen?

:devil:


Can you not see it doesn't matter as it is money Vlad owes to himself Doh??

[Viva_Palmeiras]

I dunno but just imagine what would happen to the premiership of Sky decided to cut some deals in return for equity? Then who would call the shots (as if they dont already?)

[Dr What If?]

The bigger question then is where are UBIG getting their money from? We know they have a serious credit problem so surely it won't be too long before their creditors call them to account. What happens to Hearts then?

[hughio]

The only explanation for this business model is that it affords a perfect opportunity for laundering money earned by unmonitored activities abroad.

[Sprouleflyer]

The bigger question then is where are UBIG getting their money from? We know they have a serious credit problem so surely it won't be too long before their creditors call them to account. What happens to Hearts then?

That I think is the big question.

Where does UBIG get it's funding from and how profitable if at all is UBIG?

Am I correct in thinking that UBIG have never submitted accounts?

[whiskyhibby]

Saw this little snippet on the NASDAQ OMX Exchange re Ukio Bankas




Ukio Bankas AB Notification on material event 20.02.2010

AB Ukio bankas issued bond emission

On 19 February 2010 AB Ukio bankas finished the issue of Fixed rate bond issue
EUR No. 1/2010 issued under LTL 200,000,000 short and medium term bonds
offering program. During distribution period (from 22 January 2010 till 19
February 2010) 12,664 bonds with nominal value of EUR 100 and fixed 5 percent
annual interest rate were issued. Redemption of bonds on 24 February 2011.


Marius Arlauskas,
Head of Financial Institutions and Fund Raising Department
+370 37 301 332


So out of a total bond issue of Euro 40M they only issued Euro £1.3M...............Oh Dear it looks like the £51M stand will have to wait a while, possibly even this months wages ?

:faf::faf::faf::faf:

[--------]

The only explanation for this business model is that it affords a perfect opportunity for laundering money earned by unmonitored activities abroad.


"Unmonitored activities abroad" - you mean young women smuggled across frontiers in containers, large quantities of white powder in well-sealed plastic packaging, second-hand weaponry heading for the third world, and the unregulated transfer of funds to anonymous bank accounts in Zurich and the Caribbean to pay for them?

Wouldn't surprise me.