Transport group McAleese Ltd (ASX: MCS) has seen its share price crash 64% to just 2.1 cents, after resuming trading on the ASX, following a lengthy time on the sidelines.
Shares were suspended from trading in February 2016 while the company searched for ways to recapitalise the business following a horror period since 2012.
McAleese lost a number of transport contracts after one of its trucks was involved in a fatal crash in Sydney. Investigations and likely additional maintenance expenses further weighted on that business.
Then it came under pressure when the iron ore price plunged and one of its main customers was Atlas Iron Limited (ASX: AGO). Atlas managed to work with its contractors, offering them a share of the profits and cheap shares in the business in an effort to slash its production costs, but that obviously came at the expense of revenues.
The company also says that challenging macroeconomic conditions have added to the pressure on the business. Having a ton of debt when it came to market didn't help either, and eventually saw McAleese suspend its shares until it could work out a salvage deal.
Essentially the company's financiers have forced the company to raise $26 million in new capital, issue options over ordinary shares giving its bankers 35% of the company, and McAleese will delist from the ASX. As part of the recapitalisation, McAleese will also look to sell its Cootes Transport business (the majority of its Oil & Gas division), essentially leaving McAleese with its Bulk haulage division – primarily the iron ore trucking business for Atlas – and its heavy Haulage & Lifting division.
For the pleasure of continuing in business, McAleese will be forced to pay an extortionate rate of interest on its new debt facilities of 15%, per annum, plus a variable hedging margin (1% for the first 12 months). One tranche of debt will have a 5% step up from month 7.
Foolish takeaway
Existing shareholders will be heavily diluted, whether they participate in the capital raising or not. Founder and Chairman Mark Rowsthorn will end up with between 22.6% and 65% of the company, depending on how many shareholders opt into the capital raising.
McAleese has been a disaster from the get go, but whether shareholders will chuck more money at it remains to be seen.
