Cooperating with Eletson

by Matt McCleery

The relationship between high yield investors and issuers is never a simple one. Even for companies like Eletson Corporation of Greece whose bonds trade in the rarefied neighborhood of par, there is an inherent struggle which arises because of the fact that what’s good for the equity is not always good for the debt. Put another way, increasing shareholder value is generally achieved by spending that which makes debt more valuable – cash. That is the challenge that Eletson is presently facing with respect to its $140 million in 9.25% first preferred ship mortgages notes due in 2003.

Compromising Positions
In Eletson’s case, the company has $60 million of free cash on its balance sheet, but due to the weakness in the charter market, the debt incurrence covenants in the bond indenture prevent it from borrowing money to make leveraged acquisitions. While it is true that Eletson could use the $60 million to make unleveraged acquisitions, the company’s penchant for newbuildings will prevent it from having enough buying power to fully exploit the opportunities in the market.

This is only an excerpt of Cooperating with Eletson

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