Maui Land & Pineapple Co. has filed registration documents to proceed with a previously announced plan to convert some of its debt into equity.
On Thursday, the company said it intends to pursue a rights offering for up to $40 million of its common stock. That means it will offer existing stockholders the right to purchase additional shares in the company, raising money that will be used to pay back lenders.
ML&P said shareholders have already subscribed to $27.5 million of the offering.
If the rights offering is sold out, ML&P will repurchase all of its outstanding senior secured convertible notes – a kind of debt that allows lenders to take what they’re owed in the form of stock, if they’re not paid off in cash.
In recent years, ML&P has been struggling with heavy losses and is weighed down by nearly $100 million in long-term debt. And with credit markets difficult around the world, the chances of refinancing are limited.
At a board meeting in May, directors offered the issue of up to 20 million additional common shares. These are to be offered to existing stockholders July 7, giving each current shareholder the opportunity to buy a set number of new shares, with the allocation to be based on the stock price at that time.
The lenders, or note holders, who have already agreed to be bought out have agreed to accept 88 percent of the principal they lent, plus accrued interest, plus 2 percent of the principal. The latter amount is in exchange for an agreement not to transfer their notes for 47 days.
If the offering sells out, it would generate a cash infusion for ML&P, without bringing in new investors who could potentially end up with a large stake in the company.
And by limiting the amount of new stock that could be bought based on the number of existing shares each owner holds, the offering would not dilute their current holdings.
But that could change if some owners decline the offer to invest more in the company.
If that happens, stockholders who buy their maximum number of new shares would be allowed to purchase additional shares that hadn’t already been taken up by the other owners.
That would have the effect of increasing the stakes of the shareholders who participate in the rights offering, relative to the ones who don’t.
The rights to be sold are not transferrable.
The whole refunding apparatus is dependent upon raising the entire $40 million to retire all the notes. If not enough shareholders proffer enough money, the rights offering terminates and the early participants get to keep their 2 percent lock-in fees, about $550,000.
The announcement of the registration is not an offer to sell. The rights offering will be made only by means of a prospectus.