Gran Colombia Bondholders Should Vote Against New Plan

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Gran Colombia Gold (TPRFF) has reported strong first half of 2015 results, including a 6% year over year increase of revenues and a 25% reduction of all-in sustaining cost (“AISC”), which resulted in an adjusted net income of $0.13 per share, compared with an adjusted net loss of $0.54 per share the first half of the year prior. We expect that the increase in 2015’s gold production, coupled with the reductions in total cash cost per ounce sold and G&A expenses, will continue to result in increased net income.

As a result of this, Distressed Debt 1, LP has taken a position in the company’s 5% senior unsecured bonds (the Silver notes, due in August of 2018), and we oppose the company’s debt restructure proposal under the Business Corporations Act (British Colombia) for the following reasons:

  • We believe that the proposal significantly undervalues the silver-linked notes, and that Gran Colombia Gold’s proposal improperly favors its equity holders over all of its senior bondholders.
  • The proposal appears to engender a substantial legal expense, for what looks like a bad deal for senior bondholders. Were this cost simply applied to buy back its deeply discounted debt on the open market, it surely would not only achieve much more predictable results, but in all likelihood, much more positive results with a possible ongoing plan, knowing that bankers for other debt laden companies have been accepting similar borrowing plans to buy greatly discounted debt because of the higher known return, other than the poor bet of a high cost legal entanglement.
  • Furthermore, it appears unreasonable to subject defaulted bondholders to greater impairment and lower returns than what stockholders can or seem more likely to experience.

Gran Colombia Gold’s operations have improved significantly this year, and this restructuring proposal punishes its senior debt holders by irresponsibly favoring common stock and option holders, which is largely held by company management. Therefore, we believe this restructuring proposal is a bad plan for a good company demonstrating a superior operational turnaround, and Distressed Debt 1, LP will vote against the new plan.

Durig Capital, Inc. and Randy Durig is the manager and owner of Distressed Dedt 1, LP.

Issuer: Gran Colombia Gold
Ticker: GCM.NT.U (TSX)
Coupon: 5.0%
Maturity: 08/11/2018
Rating: -/-
CUSIP: 38501DAA3
Pays: Monthly [currently in default]
Price: 20.0
Yield to Maturity: ~80%

Disclosure: Distressed Debt 1 LP, a part of Durig Capital, Inc. currently has a position in Gran Colombia Gold’s 2018 bonds.
Please note that all yield and price indications are shown from the time of our research. Our reports are never an offer to buy or sell any security. We are not a broker/dealer, and reports are intended for distribution to our clients. As a result of our institutional association, we frequently obtain better yield/price executions for our clients than is initially indicated in our reports. We welcome inquiries from other advisors that may also be interested in our work and the possibilities of achieving higher yields for retail clients.

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