Debenture holders step up again

The debenture holders at LOGiQ Asset Management Inc. are a determined bunch and unafraid to flex their muscle.

For the second time in the past 13 months — both of which coincided with a corporate transaction — the debenture holders have demanded better terms than they were originally offered by management and have held firm until they received them.

As a result the debenture holders, whose investment started with a purchase of securities paying six per cent and issued by Aston Hill in 2011, are better off than they would have been had they decided not to take up the good fight.

In their current battle, which occurred last Friday, the debenture holders were spurred into action by the deal LOGiQ made with Purpose Investments, a $32-million transaction in which Purpose acquired LOGiQ’s retail investment management business. Purpose announced the closing of the transaction on Monday, all of which means the changes, supported by LOGiQ’s debenture holders, will now go into effect.

In the circular prepared for the Dec. 8 meeting this was said: “Following discussions with certain holders of a significant percentage of the debentures, the company agreed with such holders to seek approval to various amendments to the indenture which differ in certain material respects from those proposed in the Information Circular,” the document prepared for the originally called November 13 meeting.

The changes come in three different buckets — all with different effective dates.

The first change is already in effect and essentially bars LOGiQ from performing a number of operational actions, including further borrowings, making acquisitions that require cash payments, repaying debt that’s junior to the debentures and “making distributions on its common shares or raising new equity capital.”

The major change won by the debenture holders — who are owed $22.23 million and whose normal repayment date was 2021 — was that they will now receive more of the proceeds from the transaction with Purpose, than originally planned.

Now, under a retraction right, they stand to receive up to $15.17 million or about 50-per-cent more than the previous $10.113 million. And the holders are being offered a higher retraction price: $1,010 compared with $1,000. The repayment option ends in mid-January. (The amended circular details how that procedure will work.) If holders of more than $15.17 million of debentures tender, allocation will be on a pro rata basis.

The debenture holders were also successful in getting the maturity date changed: it will now be shortened to Sept. 30, 2018. However the company has a financial incentive to redeem the remaining $5.056 million before then: redeem before June 30 and it will pay $1,010 per $1,000 bond and a rate of 7 per cent; redeem after and the cost per bond jumps to $1,050 and the rate to twelve per cent.

Holders also have an incentive to redeem early: if holders of less than $15.17 million of bonds don’t tender, the interest rate stays at seven per cent while the maturity rate stays at June 30, 2021.

In November, 2016, the debenture holders of the former Aston Hill Financial rallied when that company was being restructured, under a new ownership group, with terms that they didn’t like. As part of the restructuring, each $1,000 convertible debenture was set to convert to 1,000 shares and $600 of straight debentures that paid a higher yield.

The debenture holders complained and the resulting outcome saw them receive the return of the convertible feature; a lower strike price; more shares and a commitment not to repay the debentures in shares.