NII HOLDINGS INC NIHD
June 13, 2019 - 10:10am EST by
value_31
2019 2020
Price: 1.80 EPS 0 0
Shares Out. (in M): 102 P/E 0 0
Market Cap (in $M): 183 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Liquidation

Description

SUMMARY

Thesis (Equity): NIHD has sold its main assert and is liquidating. Estimated liquidation proceeds represent a gross return of ~35% relative to the current share price. The transaction is scheduled to close in August and the company should pay its first liquidation distribution shortly thereafter
 
Thesis (Convertible Bond): In the event the deal closes the bonds have a change of control put that allows the investor to redeem the bonds for 100% of par plus accrued interest. This establishes a floor return of 2% gross plus 4.25% p.a. interest (or ~14% IRR to end-Aug). However, the language in the bond indenture requires that NIHD puts an amount equal to bond principal plus all interest payments for the life of the bond in escrow at deal close. This amount is equal to approximately 117% of par (vs. the current trading price of 98).
 
BACKGROUND
 
 
 
 
 
 
 
 
 
3. DISTRIBUTION PROCEEDS & KEY DATES
Distribution Proceeds
  • Per above the company has provided estimates of total distribution amount and sensitivities
  • Of the total $1.00-1.50 is expected to be distributed shortly after deal close. From the press release:
    • “NII's Board of Directors has also approved and will submit to stockholders for approval a plan to dissolve and wind up NII after the closing of the transaction. NII's preliminary estimate of the amounts that will initially be available for distribution to NII stockholders relating to the transaction with América Móvil as part of NII's dissolution and wind up process is $1.00 to $1.50 per share, depending on a number of variables, including the foreign currency exchange rate in effect at the closing of the transaction with América Móvil. NII anticipates that it will subsequently be able to distribute additional amounts to NII stockholders depending on the amounts recovered from the Nextel Mexico escrow and Nextel Brazil escrow and from unrestricted cash that may be available at the completion of the dissolution and wind up process.”
Key Dates
  • EGM to vote on the deal: 27 June 2019
  • Expected Deal Close: August 2019
  • Expected First Distribution: shortly after deal close
  • Expected Subsequent Distribution(s): depends on a number of factors including the release of the Mexico escrow, release of the Brazil escrow and timing to wind down the company. The outer bound for all of this should be 18-24 months, however the Company can likely reach agreements with counter-parties which allow it to have proceeds released faster
 
 
 
4. CONVERTIBLE BOND
Section 15.02. Repurchase at Option of Holders Upon a Fundamental Change. (a) If a Fundamental Change occurs at any time, each Holder shall have the right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s Notes, or any portion thereof that is equal to $1,000 or an integral multiple of $1,000, on the date (the “Fundamental Change Repurchase Date”) specified by the Company that is not less than 20 business days or more than 40 business days following the date of the Fundamental Change Company Notice at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to, but excluding, the Fundamental Change Repurchase Date (the “Fundamental Change Repurchase Price”), unless the Fundamental Change Repurchase Date falls after a Regular Record Date but on or prior to the Interest Payment Date to which such Regular Record Date relates, in which case the Company shall instead pay the full amount of accrued and unpaid interest to Holders of record as of such Regular Record Date, and the Fundamental Change Repurchase Price shall be equal to 100% of the principal amount of Notes to be repurchased pursuant to this Article 15.
  • However, there is also some unusual language in the bond indenture which benefits bond holders. Full language below but the summary is that the Company is required to put the principal and all interest payments until maturity of the bond into Escrow in the event of a sale. This is $115m of principal and approximately $19m of interest for a total of ~$134m
Section 11.01. Company May Consolidate, Etc. on Certain Terms. Subject to the provisions of Section 11.02, the Company (and/or any Asset Sale Subsidiary Guarantor, as applicable) shall not directly or indirectly consolidate, merge or divide with or into, or sell, convey, transfer or lease, allocate or divide, in any single transaction or series of related transactions, all or substantially all of the properties or assets of the Company and its Subsidiaries, taken as a whole, to another Person, unless:
(a) the resulting, surviving or transferee Person (the “Successor Company”), if not the Company, shall either (i) be a corporation (or other non-U.S. entity taxable as a corporation for U.S. federal income tax purposes) organized and existing under the laws of Bermuda, the British Virgin Islands, the Cayman Islands, the Netherlands, Switzerland, Luxembourg, Ireland, the United States of America, any State thereof or the District of Columbia, and the Successor Company (if not the Company) shall either (A) expressly assume, by supplemental indenture all of the obligations of the Company under the Notes and this Indenture (including, for the avoidance of doubt, the obligation to pay Additional Amounts, as set forth in Section 4.09), or (B) solely in the case of any such sale, conveyance, transfer or lease, fully and unconditionally guarantee by supplemental indenture all of the Company’s obligations under the Notes and the Indenture; or (ii) solely in the case of any such sale, conveyance, transfer or lease, is not a party to this Indenture and the Notes and deposits the Escrow Amount into the Escrow Account pursuant to Section 11.04 concurrently with such transaction and as a condition precedent to such transaction;
(b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing under this Indenture; and
(c) at or prior to the effective time of any such transaction, the Company (or any issuer of any Reference Property, as applicable) will (x) file a shelf registration statement for the resale of any shares of Common Stock (or other Reference Property) issuable upon conversion of the Notes and (y) cause such shelf registration statement to be effective and useable by Holders identified therein as selling security holders for the resale of any shares of Common Stock (or other Reference Property) issued upon conversion of the Notes; provided that, the Company (or the issuer of the Reference Property, as applicable) will not be required to take such actions if (i) the Company has irrevocably elected for Cash Settlement to apply in respect of conversions of the Notes following the effective time of such transaction or (ii) with respect to any shares of the Common Stock (or other reference property) issuable upon conversion of the Notes following the effective time of such transaction, such shares of Common Stock (or other Reference Property) would not bear or be subject to any restrictive legend, such shares of Common Stock (or other Reference Property) would be assigned an unrestricted CUSIP number and such shares of Common Stock (or other Reference Property) would otherwise be freely tradeable by Holders other than Affiliates of the Company or Holders that were Affiliates of the Company at any time during the three months preceding (without restrictions pursuant to U.S. securities laws).
For purposes of this Section 11.01, the sale, conveyance, transfer or lease of all or substantially all of the properties and assets of one or more Subsidiaries of the Company to another Person, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the sale, conveyance, transfer or lease of all or substantially all of the properties and assets of the Company to another Person. Section 11.02. Successor Corporation to Be Substituted. In case of any such consolidation, merger, division, sale, conveyance, transfer or lease, allocation or division and upon the assumption by the Successor Company, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and accrued and unpaid interest on all of the Notes, the due and punctual delivery or payment, as the case may be, of any consideration due upon conversion of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such Successor Company (if not the Company) shall succeed to and, except in the case of a lease of all or substantially all of the Company’s properties and assets, shall be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company (except in the case of a lease of all or substantially all of the Company’s property and assets) shall be discharged from the obligations of the Company under the Notes and this Indenture. Such Successor Company thereupon may cause to be signed, and may issue either in its own name or in the name of the Company any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Successor Company instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the Officers of the Company to the Trustee for authentication, and any Notes that such Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or transfer (but not in the case of a lease), upon compliance with this Article 11 the Person named as the “Company” in the first paragraph of this Indenture (or any successor that shall thereafter have become such in the manner prescribed in this Article 11) may be dissolved, wound up and liquidated at any time thereafter and, except in the case of a lease, such Person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture and the Notes. In case of any such consolidation, merger, sale, conveyance, transfer or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate.
Section 11.03. Opinion of Counsel to Be Given to Trustee. No such consolidation, merger, division, sale, conveyance, transfer or lease, allocation or division shall be effective unless the Trustee shall receive an Officer’s Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with the provisions of this Article 11. Section 11.04. Escrow Account. (a) If the Company or any of its Subsidiaries shall sell, convey, transfer or lease, in any single transaction or series of transactions, all or substantially all of the properties or assets of the Company and its Subsidiaries, taken as a whole, to any other Person, the Company may elect to satisfy its obligations pursuant to Section 11.01(a) to be satisfied by causing an amount in cash from the proceeds of such transaction equal to the Escrow Amount to be deposited into an escrow account pursuant to this Section 11.04 (such account, the “Escrow Account”, and such election, the “Escrow Election”). The Company will provide the Trustee with notice of such election at least 15 Business Days prior to the closing date of such transaction. If the Trustee is not so notified, the Company will be deemed not to have made such election. (a) If the Company has elected to satisfy its obligations under Section 11.01(a) by making an Escrow Election, then concurrently with and as a condition precedent to any such transaction, the Company shall (i) enter into an agreement with the Trustee and the Escrow Agent regarding the Escrow Account (such agreement, the “Escrow Agreement”), with such Escrow Agreement to be in form and substance reasonably satisfactory to the Escrow Agent, and (ii) cause the Escrow Amount to be deposited in the Escrow Account. In executing the Escrow Agreement, the Trustee shall be entitled to conclusively rely upon an Officer’s Certificate and Opinion of Counsel confirming that all conditions precedent under this Indenture have been complied with. The Escrow Agreement will grant the Trustee, for the benefit of the Holders, the Trustee, and the Escrow Agent, a first priority security interest in the funds in the Escrow Account to secure the Company’s obligations under this indenture. Such security interest shall be released upon the release of funds from the Escrow Account. (b) The Company shall not elect Cash Settlement or Combination Settlement with a Specified Dollar Amount greater than $1,000 per $1,000 principal amount of Notes to apply to any conversion of Notes with a Conversion Date following the effective date of any transaction pursuant to which the Company has made an Escrow Election.
(c) Following any Escrow Election, the execution of the Escrow Agreement, and the deposit of the Escrow Amount into the Escrow Account, the Company shall be entitled to deliver an Officer’s Certificate (substantially in the form attached to the Escrow Agreement) to the Escrow Agent (with a copy to the Trustee) directing the release of amounts to the Conversion Agent or Paying Agent from the Escrow Account to fulfill any of the Company’s monetary obligations under this Indenture. 
(d) If an Event of Default has occurred and is continuing, the Trustee shall be entitled to request that the Escrow Agent release funds from the Escrow Account to satisfy the Company’s monetary obligations under this Indenture (including, for the avoidance of doubt, the obligation to make any payment of principal, interest or of any Fundamental Change Repurchase Price or Redemption Price, the obligation to convert the Notes upon exercise of a Holder’s conversion right, and the Company’s obligation to the Trustee and the Escrow Agent for fees, expenses and indemnities).
(e) The release of any amount remaining in the Escrow Account shall be subject to the satisfaction in full of the Company’s obligations under the Indenture by delivering to the Securities Registrar for cancellation all outstanding Notes and by depositing with the Trustee or delivering to Holders, as applicable, after the Notes have become due and payable, whether at maturity, at any Fundamental Change Repurchase Date, upon conversion or otherwise, cash or cash and/or shares of Common Stock, solely to satisfy outstanding conversions, as applicable, sufficient to pay all of the outstanding Notes and paying all other sums payable by the Company under this Indenture. Prior to any such release, the Trustee shall receive an Officer’s Certificate and an Opinion of Counsel as conclusive evidence that such release complies with the provisions of this Article 11.
 
  • The SPA for the transaction explicitly deals with the Escrow issue (see here: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001037016/364fabef-4523-4664-a5c6-402336184e67.pdf)
2.3. Payment of Purchase Price . On the Closing Date, Purchaser will: (a) pay the Closing NIIH Payment to NIIH, by wire transfer of immediately available funds to the account designated by NIIH in writing no later than two Business Days prior to the Closing Date; (b) on behalf of the Company, pay the Closing AI Brazil Payment to AI Brazil by wire transfer of immediately available funds to an account designated in writing by AI Brazil no later than two Business Days prior to the Closing Date; (c) deposit the Escrow Amount with the Escrow Agent, by wire transfer of immediately available funds, to be held in the Escrow Account in accordance with the Escrow Agreement; (d) deposit the Convertible Notes Escrow Amount with the escrow agent for the Parent Convertible Notes, by wire transfer of immediately available funds, in the event that the Indenture has not been amended in accordance with Section 8.20(a) or Parent has not made the escrow deposit contemplated by Section 8.20(b) ; and (e) on behalf of Nextel Brazil, pay the Pay-Off Amount to each of the recipients specified in each of the Pay-Off Letters by wire transfer of immediately available funds to the accounts specified in such Pay-Off Letters.
 
8.20. Parent Convertible Notes . (a) The Parties expressly acknowledge and agree that none of Parent’s obligations under the Parent Convertible Notes will be assumed or guaranteed by Purchaser, the Entities or any Affiliate thereof. Parent may, in its reasonable discretion, take actions to amend the Indenture prior to the Closing to eliminate the obligations contemplated under Article 11 of the Indenture (and, in Parent’s reasonable discretion, to delete or modify other provisions of the Indenture in a manner not adverse to Purchaser or the Entities or that would not impede or delay the Closing). Parent shall keep Purchaser informed with respect to the status of the actions taken pursuant to the foregoing. (b) In the event that the Indenture has not been amended in accordance with Section 8.20(a) , Parent shall elect to satisfy its obligations under Section 11.01(a) of the Indenture by causing an amount in cash equal to the Convertible Notes Escrow Amount to be deposited into an escrow account pursuant to Section 11.04 of the Indenture (an “ Escrow Election ”), and shall deliver written notice of such Escrow Election to the trustee no later than fifteen business days prior to the anticipated Closing Date. In the event of an Escrow Election, (i) Parent shall negotiate in good faith, and enter into, an escrow agreement with the trustee and an escrow agent as promptly as reasonably practicable and in any event prior to the Closing Date, which escrow agreement shall (A) establish an escrow account to receive an amount in cash equal to the Convertible Notes Escrow Amount and (B) grant the trustee, for the benefit of the holders of the Parent Convertible Notes, the trustee and the escrow agent, a first priority security interest in the funds in the escrow account to secure Parent’s obligations under the Indenture, (ii) unless Parent has previously caused an amount in cash equal to the Convertible Notes Escrow Amount to be deposited into the escrow account pursuant to Section 11.04 of the Indenture, Purchaser will deduct an amount in cash equal to the Convertible Notes Escrow Amount from the amount payable to NIIH pursuant to Section 2.3(a) and deposit such amount with the escrow agent pursuant to the escrow agreement contemplated in this Section 8.20(b) , and (iii) Parent shall otherwise comply with Section 11.04 and the other terms of Article 11 of the Indenture with respect to such Escrow Election and the transactions contemplated by this Agreement.
 
 
  • So assuming the deal closes you will have ~117pts of cash deposited in Escrow. The bonds are currently trading at 98 and have a 4.25% coupon. You will collect ~4.4% running until bond maturity in 2023, with very little credit risk (as the funds will be in escrowed T-bills or something similar).
  • However, it’s not in anyone’s interests to have this cash tied up the company wants the surplus to be distributed to shareholders and CB holders will want to receive cash sooner. As such some deal is likely. This is explicitly contemplated by all parties:
    • You see from the language from the SPA above there is a contemplation in the SPA for a modification to the indenture
    • The company also says the following in their 8-K (here: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001037016/364fabef-4523-4664-a5c6-402336184e67.pdf): 
      • “The closing of the transactions contemplated by the Purchase Agreement are subject to the satisfaction of customary conditions, including approval of the stockholders of NII, receipt of required regulatory and antitrust approvals, and either an amendment eliminating the obligations contemplated under, or an escrow agreement providing for a deposit in accordance with, NII’s Indenture with respect to NII’s 4.25% Convertible Senior Notes due 2023.
  • The likely outcome is that bond holders agree to receive something more than par but less than 119pts as long as they receive it at close of the transaction o Below is a sensitivity which values the 117pts of cash at various spreads to treasuries (in theory the risk here is low as it’s escrowed cash – so the top end of the table is where you would expect it to come out. A lot of make-whole language is generally T+25 or T+50)
 
 
 
 
 
 
 
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

  • Equity: Deal close and liquidation distributiions paid 
  • Convertible bond: deal closes and cash put into escrow (or more likely company makes an offer to repurchase the bonds above par)
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