News: EHL Emeco Holdings updates on recapitalisation and merger with Orionstone and Andy'S, page-26

The deal de-risks their financial position but future upside will be constrained by the dilution.

In broad terms, EHL shareholders are getting diluted down to 25% of a much larger company with almost double the EBITDA. Participation in the capital raising will improve existing shareholders position assuming the underlying value of the shares is more than the issue price. So you can think of it as existing shareholder effectively giving up about half their equity in return for a much more secure financial position.

The alternative would have been (and possibly still is) to attempt to trade through the current environment and hope that the debt can be refinanced before it falls due. With market conditions and margins improving, I thought this was a real possibility although much riskier.

I was hoping they would secure a better deal given that bonds have been trading at 60% of face value. As it stands, the deal seems reasonably fair to all stakeholders with bondholders probably coming off best.

The two major shareholders are supporting the deal, which is a positive as long as they are not also holding some bonds.