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Ebix lender agreement & Energy Recovery 3Q23 schedule -6

11:33 02-Oct-23


EBIX initially traded over $10 this morning, but quickly declined 10-15% to mostly trade between $8.50 and $9 as investors absorbed some of the details I've mentioned here.  Please note the addition of the link to my source on last quarter's debt numbers, below.

If there is interest, I will write further, but unless there are requests for ongoing updates, this will be the last I'll write about Ebix until there is another material development.  Given that I've tracked the debt situation for three and a half years and have been nothing but negative on the company since May, while shares traded over 2-3x recent prices, I'm figuring no subscribers have long positions.  To summarize, my base case is that current shareholders will eventually be wiped out.  I think the best case scenario at this point is that current management does an asset sale to restructure the company without bankruptcy protection, thereby retaining control and maintaining ownership of whatever is left for shareholders.  However, at this point, I speculate that even in such a scenario, I would be far from alone in regarding retention of current management as a negative factor.

On 10/2/23 09:29, Esekla wrote:
Ebix has announced a Forebearance Agreement with its lenders, which extends its payment deadline to November 15th, but also specifies that by the end of this month they will agree on either:
  1. the terms of either a further amendment to the Credit Agreement
  2. alternative transaction for repayment of the obligations
Ebix will deliver a carve out plan for unspecified American assets in connection with #2.  Accordingly, Ebix added two new board members, who specialize in corporate carve ups and almost certainly represent the lenders, as of September 29th.

The 8-K filing has more detail including a minimum of $420K compensation for these board members, plus expenses, plus $7500 per day that each is in talks or spending more than 4 hours preparing for them.  It also specifies that any alternative transaction will eliminate at least two thirds of Total Credit Exposure and that past due amounts will accrue interest at the Default Rate in the meantime.

EBIX shares have bounced around a little in the pre-market, but I see this as evidence that the lenders could have forced default, but don't want to.  It affirms my expectations with regard to seeing the debt extended again.  Accordingly, I suspect that an EbixCash IPO is no longer a viable solution for the CEO or shareholders.  I haven't had time to do the math yet, and it wouldn't be current anyway given the new covenants, but the $616.8M of outstanding debt at the end of last quarter was more than double the current market cap of around $300M.  Thus, I think the only hope is that current management finds outside bidders who are willing to pay enough for parts of the company to make it worthwhile for the lenders to avoid the messy process of taking everything.  At this point, current management could probably salvage more for themselves under bankruptcy protection than otherwise.

Energy Recovery has also scheduled its third quarter report for the evening of November 1st.  The average of 4 analyst estimates is 5 cents of EPS from $31.3M of revenue, increasing seasonally to $67.3M to end the year with more than half of annual sales.  As ever, I will report the numbers and anything unusual, but have no interest in ERII anywhere near or above $20.