In Response to Rolta’s Restructuring Support Agreement Announced February 13th, 2018
Rolta (NSE: ROLTA) has recently announced the signing of a new Restructuring Support Agreement (RSA) in which Senior Bondholders could essentially receive a worst case remittance of principle at 53 cents on the dollar. Even worse, Rolta has failed to remit or even address the years of unpaid accrued interest owed to bondholders on their defaulted senior notes, which is now close to 20 cents per dollar of bond principle. This whole time, stockholders that are legally in line behind debt holders have felt no pain.
We also found the language Rolta used in their offer to be very devious, where many might get the wrong impression and consider this a done deal. An example of the unclear language follows:
“The Committee has unanimously signed a Restructuring Support Agreement..”
Rolta needs to receive votes in favor of greater than 50% by number AND greater than 66.7% in dollar amount of senior claims for this to pass. The language used leads one to believe they have already obtained such levels of support, making it sounds like this is already a packaged deal. However, at the time of our last review it was our understanding they had only obtained about ~25% of bondholder agreement — which is far from the level of support needed to move forward with this ridiculous proposal.
Even though we view this offering as better than the first offering, one must consider that the underlying business in many ways is improving – which is far different from what this recent proposal reflects. After their first offering we wrote the following response, ROLTA wrongly prioritizes Stockholders ahead of Bondholders- Distressed Debt Hedge Fund Review. It is our opinion that Rolta has once again placed the interests of stockholders ahead of their debt-holders.
Durig Capital’s Distressed Debt 1 Hedge Fund has been an activist in corporate matters in the past, most recently with Discovery Air in “Letter to Discovery Air..” and believes that advocating for the interests of its bondholders has helped to propel our outstanding performance to new heights over the years, allowing Distressed Debt 1 to finish the month of June, 2018 with a Compound Annual Growth Rate (CAGR) of 43.77%. The most recent tearsheet and performance of the Distressed Debt 1 Hedge Fund is displayed above.
While Rolta’s efforts may be disguised as an attempt to improve the health of their balance sheet, bondholders should note that this effort comes at the expense of their own pockets. This is not the first time that Rolta has revealed its misguided priorities, just last May, Rolta announced they would be holding a meeting to entertain the idea of increasing their dividend payment to stockholders while their Senior bonds remained in default (as they had been for some time). This announcement is clearly another blatant disregard of the senior claim that bondholders maintain on company assets, which Durig Capital strongly urges bondholders to oppose.
It is our opinion that Mr. Singh owns over 50% of the company stock, which, if our assumption is correct, represents a massive failure of his fiduciary duty to stakeholders.
We strongly advise bond holders to not even consider a bond offering until Rolta decides to take their default seriously.
For more information please contact Durig Capital toll free at: (877) 359-5319
For more information or questions concerning Rolta or the Distressed Debt 1 Hedge Fund, please ask here and we will try to get back to you shortly.
Always putting your interests first,
Registered Investment Advisor