Lies, Damned Lies and Winnifrith Analysis

The following are some excellent examples of how Tom Winnifrith’s lying and scheming is considerably worse than anything he accuses his short-selling targets of doing.

 

On June 6^th he wrote: ‘I have today received a letter from the Financial Reporting Council about a complaint I made about the uber dodgy accounts of drowning in debt heading for insolvency Avanti Communications (AVN). You will remember that Avanti did 2 transactions which generated cash in of nil and cash out of $14 million and booked that as a sale of $25 million on a 100% EBITDA margin.

I argued that this was misleading. Avanti defended its case and has managed to avoid having to restate. However, as the letter from the FRC makes clear it was forced to make changes to the way it presents the matter in its accounts and also to disclose management assumptions which underly this "profit" booking. When those are shown to be ludicrous by events that will be the rope to hang the bombastic prick of a CEO David Williams and his board.

This is not the total victory I had hoped for but in forcing Avanti to change the way it presents this strange transaction it is a win none the less. And it is now the third win I have had with crap AIM companies and the FRC (Eden Research and Quindell being the others).

Once again the FRC thanks me for my efforts. To certain pious share bloggers who have never had any such victories but claim to be pure as the driven snow and question my ethics and what it is I do, I say "fuck you."

As for Avanti, good companies are not forced to represent their accounts by the FRC. My target price remains 0p.’

 

In fact, the FRC says quite clearly that they found nothing untoward.  It does not say that the accounts had to be represented…they didn’t. 

Avanti didn’t have to make changes.  The management assumptions were fully disclosed in the 2015 accounts, but Winnifrith just ignored them.

For two years he has said Avanti was under investigation.  He was lying. As the FRC said ‘the matters you raised are not being pursued further’.

 

On June 11^th he wrote: ‘I reflected upon this and then on Avanti Communications (AVN). Again I got another little win last week with the FRC forcing the company to change the way it presents its accounts.’

(Lie…they weren’t forced to do anything)

‘But really what has changed? This company was launched with CEO David Williams faking a product demonstration to investors. That is fraud.’

 

Another lie, of which he is very well aware. This was a meta-test demonstration to a customer, explaining how kit that had not yet been launched would work in the future.  The customer signed up, the satellite was launched. The customer paid.

 

On June 14^th: ‘It is not a matter of IF drowning in debt satellites company Avanti Communications (AVN) will eventually see a 100% shareholder wipeout ( right now it is c99%) but WHEN. And it might be rather sooner than most folks think. In two weeks time to be exact..

The headline of the 20th December RNS was economical. It trumpeted a $242 million refinancing. Most people probably thought this was a great result. But dig in 2 layers, and it's not nearly as good as the spin suggests.

Layer 1: of the headline $242 million, $112 million is interest deferral - so not actual cash to pay for things like building satellites, launching satellites or funding … just not having to pay cash out in the future to the bondholders.

Layer 2: This is where things are interesting; Williams proclaimed $130 million of new cash funding. However, this was split $80 million upfront but the remaining $50 million was due in two tranches of up to $15 million on 30th June 2017 and $35 million on 30th November. But it's only on page 4, after screeds of repetition and the 4th time that the $50 million is mentioned that you discover that these payments are not certain. In fact, they are:

"subject to certain conditions being satisfied on the draw down dates, including there having been no default in respect of any indebtedness of the Company and no material adverse change having occurred."

So what are these "certain conditions" and have they been met or is there the prospect that Avanti won't receive its cash on 30th June? I think the company should tell its long suffering shareholders.....’

 

Two days later Avanti told investors that the conditions had been met or waived and the company would receive the $50m and another $50m on top.

But Loserfrith was so cross he chose to report this differently, as follows.

 

On June 19^th: ‘You are drowning in debt so what to do? In this crazy world you take on more debt! and so Avanti Communications (AVN) today announced that it had secured a new $100 million debt facility. Read carefully and you will see what an absolute nightmare this news is.

Avanti states that it has "entered into a facility agreement with HPS1 which will provide a $100 million three-year super senior facility (the "Super Senior Facility"). The proceeds from the Super Senior Facility replaces an existing undrawn higher cost $50 million debt facility and provides $50m additional new liquidity and will be used to complete the construction and launch of the Company's HYLAS 4 satellite and, subject to certain conditions, may be used to redeem or repurchase some of the Company's outstanding high yield notes. The interest rate is 7.5% p.a, versus a rate of over 10% p.a. on the facility that is being replaced.

In order to incur the Super Senior Facility, the Company has received sufficient consents from holders of its outstanding notes to certain amendments to the indentures governing the notes and the intercreditor agreement, including amendments to the EBITDA financial covenant such that the first testing date is to be moved from 30 June 2017 to 31 March 2018 and the thresholds are to be lowered.

The Super Senior Facility will close upon execution of the necessary documents which the Company expects to occur on or around 21 June 2017. Upon the incurrence of the Super Senior Facility, the Company will cancel all outstanding commitments for holders of its 2021 PIK Toggle Notes to purchase delayed draw notes on 30 June 2017 and 30 November 2017.

But before the bombastic prick of a CEO David Williams gets too excited I make three points.

1. HCL states that it provides "non investment grade" debt, that is to say junk bonds. If the bonds are classified thus that truly makes the equity worthless.’

 

Lots of companies issue non-investment grade bonds.

 

‘2. We were told in December 2016 that the refinancing announced then ( i.e more debt) fully funded the company - it's even in the headline of the press release. In today's RNS we're being told that the additional liquidity that's being raised "will be used to complete the construction and launch of the Company's HYLAS 4 satellite"

So was the original RNS misleading or is the company performing si far below forecast just six months later that it desperately needs more cash? Or both.’

 

Funny, because earlier Tom Tit said the liquidity wasn’t going to be available. Now it’s confirmed that it is…and the company is “fully funded”.

 

‘3. The EBITDA Covenant has been pushed back from 30 June 2017 to March 2018. There was an EBITDA Covenant at June 2017? Really. That is the first time that has been mentioned. Shareholders should have been told about this as it's blindingly obvious to everyone that Avanti was not going to make this covenant test.’

ALL debt issues have covenants and virtually all of them are EBITDA covenants.  What’s TW’s evidence that Avanti didn’t pass the last covenant test? It has just secured funding at a materially lower rate, after all. One must assume that the new lender was happy with the covenants

 

‘And also the thresholds are going to be lower. So in the 6 months since the refinancing, business has gone so badly that they've pushed the covenant test back by 9 months!’

 

What IS he talking about? If there had been covenant problems then they wouldn’t have been able to refinance at better terms. The threshol - the amount of ebitda that the lenders require the company to be delivering - have been lowered, because evidently the lenders are sufficiently confident about the long term future of the business that they are relaxing the covenants.

Winnifrith and his cabal of short-selling con artists have had some success driving down Avanti shares, but the long-promised ‘wipe-out’ continues to elude them. 

 

Perhaps, to be fair to him, he is so enmired in ordure that he can not recognise the stink of his own corruption. But we think he can. When it comes down to it, he’s just a bent, fifth-rate tipster.