Toronto’s Victoria Park transit station renovation by IBI Group has won several awards. Late last week, IBI announced its intention to rework the terms of some convertible debentures
A contentious fee, devised to convince IBI Group Inc.'s investors to vote in favour of the firm's proposed debt refinancing, has been revamped.
IBI Group, which specializes in consulting on architecture and engineering projects, recently announced plans to extend the maturity date on its convertible debentures that come due on Dec. 31, 2014 by five years. To get noteholders on-side, the firm offered up a 7 per cent "consent fee" for those who voted in favour of the plan.
The proposal immediately created a firestorm, with some investors arguing the firm was creating two classes of noteholders – those who vote in favour and get the fee, and those who do not vote, or who vote against, and get nothing. While the practise isn't unheard of, the big consent fee raised questions of fairness.
"I feel like I've had a gun to my head," investor Ehoud Farine told The Globe and Mail.
After consulting with noteholders, IBI decided to rework the terms of the deal. Under the new proposal, investors can choose between three courses of action.
For those who vote in favour of refinancing, the first option is to take a fee amounting to 19.65 per cent – substantially more than the original 7 per cent – that will be paid in the form of new debentures on December 31, 2016. These notes will earn 7 per cent in interest annually.
The second option for those who vote in favour is to take a fee amounting to 8.7 per cent, paid in the form of new debentures on December 31, 2016. These new notes will also pay 7 per cent in interest annually. In exchange for taking a lower consent fee, these investors will get a reduced conversion price on their existing notes, which will drop from $19.17 per share to $5 per share. IBI's stock currently trades at $1.95 per share.
Finally, IBI has decided to give something to investors who either do not vote, or who vote against the refinancing plan. Although they won't get a consent fee, these investors will see the conversion premium on their existing bonds fall to $5 per share.
Such a change is especially beneficial to retail investors. Convertible debentures are commonly held by unsophisticated investors, and anywhere between 10 and 40 per cent of retail investors typically won't vote on proxy issues – sometimes simply because they don't understand the issues or don't pay close enough attention, meaning they could lose out on a meaningful payout simply by not voting.
IBI Group is in the middle of executing a restructuring plan, and the company is doing what it can to defer paying the $46-million worth of convertible debentures that come due late this year. IBI's shares have been in freefall over the past few years and the company wrote off $225-million worth of goodwill, work in progress and accounts receivable last year.
Tim Kiladze