ION Geophysical Corporation Files for Bankruptcy Protection (NYSE:IO) – Seeking Alpha | Vette Leader

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Last week, seismic data provider ION Geophysical Corporation (IO) or “ION” filed for bankruptcy protection after a several-month review of strategic alternatives failed.solicit viable bids at reasonable prices” how disclosed in the company Disclosure Statement.

In connection with the Chapter 11 Filing, ION entered into a Restructuring Assistance Agreement (the “RSA”) with the lenders under its Credit Agreement and the holders of approximately 80% of its 2025 Notes, in which the parties agreed to expand the Company’s Post Chapter plan 11 to support the reorganization (the “Plan”).

The Company and consenting creditors, parties to the RSA, have agreed to the terms of a comprehensive reorganization, including the plan based on (i) an exchange of debt for equity in conjunction with the potential sale of certain assets to one or more third parties parties or (ii) a sale of substantially all assets. Under the terms of the RSA, ION will continue its ongoing solicitation of interest from third parties in potential sales transactions involving the Company in order to maximize the value of the Company’s assets through an open and transparent process that allows interested buyers to submit bids surrender for assets.

The Company has also secured $2.5 million in debtor-held financing which, along with normal operating cash flows, should support operations through the process.

As a result, ION intends to restructure a total of $147.6 million in funded debt:

  1. Its first revolving lien loan facility with an outstanding principal balance of approximately $15,600,000 in addition to approximately $30,559 in accrued and unpaid interest.
  2. The Company’s new 8.00% Second Lien Notes are due December 15, 2025 and have an aggregate principal amount outstanding of approximately $116,193,000, in addition to approximately $7,804,684 in accrued and unpaid interest.
  3. Its original 9.125% Second Lien Notes for an aggregate principal amount of approximately $7,097,000, which matured on December 15, 2021, in addition to approximately $902,447 in accrued and unpaid interest.

While the company remains open to a sale of some or all of its assets, a major restructuring seems the most likely outcome at this point.

Under the terms of the Restructuring Support Agreement, the lenders of the revolving credit facility will receive either:

  • a) Cash payment in full or
  • b) if not paid in full in cash, their pro rata share of an exit opportunity or
  • c) Restoration or modification of their claims as agreed between the Company and the Lenders

The holders of the Company’s 2025 Second Lien Notes will become the new owners of the restructured ION, with their claims being converted into 99.75% of the new equity, subject to dilution from the Management Incentive Plan.

General unsecured claims (including the original 9.125% Second Lien Notes due 2021) will remain in the bag as the total recovery pool has been priced at a paltry $125,000.

Current shareholders will receive their 0.25% interest in the new equity, subject to dilution through the Management Incentive Plan.

The transaction contained in the plan and the restructuring support agreement will be subject to a market test. Accordingly, the Debtors will, in parallel, conduct an extensive marketing process to determine, in the Debtor’s business judgment, whether a sale or combination of sales is higher or otherwise better than the proposed Lender Transaction set forth in the Restructuring Support Agreement and Plan.

Applying the 0.25% recovery for common shareholders to the company’s current market cap of $12.5 million, the restructured ION is currently valued at a staggering $5 billion (!!!) despite there being no offers for covering less than $150 million in debt.

In fact, last year’s review of strategic alternatives revealed only non-binding bids totaling well under $100 million:

Summary of offers

Company SEC Filing

While this apparent discrepancy makes the stock appear as a perfect short opportunity, sky-high lending rates coupled with margin requirements and some uncertainty surrounding the ongoing extensive marketing process are likely to sideline potential short sellers until the company nears emerging markets out of bankruptcy , which is currently expected for the end of July.

bottom line:

As I have anticipated for some time, Ion Geophysical Corporation will be forced to restructure its debt obligations in bankruptcy, leaving shareholders with virtually nothing.

Assuming a generous post-bankruptcy equity value of $100 million, the fair value of an existing share would be calculated at just $0.007, resulting in a 98% loss for the shares from current levels.

Even factoring in current lending rates of around 70%, the stock looks like a great short as the company is expected to emerge from bankruptcy in less than four months.

But ugly margin requirements and some remaining uncertainties related to the ongoing marketing process are likely to sideline potential short sellers for now.

Also keep in mind that the NYSE will likely begin the delisting process as soon as next week.

Given these issues, existing shareholders should sell their shares and move on.

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