Three days ago One Call failed to make a $15 million payment to some of its bond holders. Last night I asked the company for a comment; the company responded saying they “…chose to take advantage of an available 30-day grace period for paying interest under the terms of one of our debt agreements…”
Simultaneously they released a statement about the situation – kudos to OCCM management for working to get their message out before the payment problem was revealed elsewhere. That was smart marketing.
In a followup email, I asked “Was one call’s very tight cash position a factor in the failure to make the payment on the due date?”
As of yet there has been no response.
Let’s parse this out. “Taking advantage” of an “available 30-day grace period” is not a tactic commonly used to “provide additional time to further advance these constructive lender discussions as we work together on a comprehensive capital structure solution that will best position One Call for the long term.”
You may recall One Call did a major debt restructuring earlier this year, one that allowed the company to forgo paying monthly interest but added that interest cost to the principal amount. That saved cash flow but increased the total debt burden.
That higher debt burden coupled with debt covenants made for a potentially bigger long term problem. Simply put, the higher the debt, the more pressure on the company to make sure it has adequate cash reserves and didn’t have to dip too deep into its line of credit.
If you can’t make a debt payment, you know that well before that payment is due.
If you haven’t been able to figure out how to come up with the cash to make that payment, chances are you won’t be able to do so in another month. Reports indicate One Call has been working on this for over three months
If you haven’t been able to “advance constructive lender discussions” when you’ve been working on it for more than three months, and after a major debt restructure a few months before that, one wonders how constructive those lender discussions have been – and will be.
Here’s what we know.
At the end of June the company had about $6 million in cash and equivalents on hand. That’s equal to about one day’s expenses…perhaps a bit more.
We also know there are three levels of debtholders – the first, “1.5”, and second lien holders. That’s the order of seniority in case of default; the first lien holders get first crack at any assets, followed by the 1.5, with second lien holders hoping there’s something left.
We also know One Call has debt covenants that way well be in play here as the company has drawn down its line of credit, which triggers certain rights for debtholders.
We also know One Call said everything was fine just three months ago; now we hear they are in “constructive lender discussions”. Quoting CEO Rone Baldwin;
I would like to share that One Call is stable and secure. The company is fully compliant with its debt covenants and meeting all of its legal and financial obligations, and we expect this to continue to be the case.
Finally, we know the three sets of lien holders are each working with financial advisers.
More to come later today.
One Call’s official statement is here.