a blog of my experiences and observations of making ISK in Eve Online, from the beginning. - - - - Ingame chat channel: Ironforge Commerce Guild - - - - - - If you are a new trader and want to learn my methods, start at the first post from 14 May 2013 and read onwards . . . . . view this as an ISK Guide
The reason I have only just noticed is that the announcement is in Icelandic and not on the CCP website - that may suggest a bigger matter is underway here, more on that below.
The redemption is not a bad idea given the interest CCP had to pay on the $20m bonds was 7% (I.e $1.4m per year) and this bond was due for repayment in July 2017 anyway. In today's world of falling yields that is an extremely high rate.
What is interesting though is CCP does not have the ability to repay this $20m (plus any outstanding interest).
Therefore, CCP will need to replace this $20m convertible with new debt. That is quite normal, most companies roll over their old debt into new debt.
The hope is that CCP will be paying a lower interest rate given how rates have fallen globally (CCP should be able to halve their interest rate) + most of CCPs revenues are not in Iceland ($/Euro/GBP revenues paying $/Euro/GBP debt) + Iceland is getting closer to rejoining the international financial markets anyway.
This whole transaction perhaps explains why the 2014 accounts seem to be later than usual (I.e. not out yet).
Worth noting that the original prospectus allows the bond holders to take shares of CCP instead of repayment. The redemption notice was given on 27 March 2015 and so the holders have 30 days to notify CCP if they want shares instead of cash.
"Prior to any voluntary prepayment of the Bonds, each registered Bondholder will receive at least thirty (30) calendar days’ advance notice, and during such period will have the right to convert its Bonds to common shares in lieu of the voluntary prepayment."
That may not be a bad idea given how profitable CCP could be if all it did was just Eve Online. Though I am surprised, therefore, that the 2014 accounts are not out to give the bond holders an idea of how the company currently looks.
Something Bigger going on - like a Recapitalisation?
This all suggests something bigger at CCP, indeed it is possible that CCP is going through a recapitalisation process - an action that companies undertake when their balance sheet is under pressure and they need new capital to continue, either from new or exist shareholders (sounds the most likely action here) or from the banks swapping their debt into equity (sounds unlikely action here).
When i review my forecasts for CCP i was assuming that the revenues in the second half of 2014 were the same as the first half leading to a 6% decline in Eve Online 2014 revenues compared to 2013 revenues, and after China sales a 4% total decline in revenues. That may prove to be optimistic - but lets stick with it for now.
I then struggled to work out the R&D (a lot going on) but i suspect the company was going to make about $13.8m EBITDA (earnings before interest, tax, depreciation, amortisation) but a total loss of $23.3m.
In all, that would leave the company with a net debt to ebitda ratio of 1.3x. If it gets to 1.5x then the debt holders start to get more control (i.e. the debt covenants are set at 1.5x ebitda).
The full post i wrote back in September on the CCP financials is here and demonstrates how 2015 will be a tougher year under the current balance sheet structure (i.e. with the $20m convertable bond debt) . . . . . i am though missing a lot of information to make head or tail of all the underlying actions.
I suspect, now that the decision has been taken to effectively cease / reduce spending on World of Darkness and Dust514, the company is in a better position to attract new capital to overcome the gap left in the balance sheet from the above two projects.
My personal view is that Eve Online itself is a very profitable though low growth venture and the surplus cash flows can be used to fund another project. Unfortunately, World of Darkness and Dust514 did not work out as planned and the company saddled itself with expensive debt in the process which has put it in a tight spot.
I believe the company may be drawing a line under this all, perhaps adding new shareholder funds to the balance sheet and swapping the expensive Convertible Bond debt for cheaper debt. In doing so, CCP will have a good profit stream from Eve Online, a new venture in Valkyrie and will be pondering what to do with Dust514.
In all, this should be good news for CCP and Eve Online.