Cenkos Note dated 7th November regarding Equities First Holdings RNS.
The following are key points from the Cenkos note:
1) Directors have transferred a percentage of their total holding as security (i.e. proportionate to the loans).
2) Directors are only using the loan to buy equity in Quindell.
3) 52m shares could be used to provide further firepower for share purchases or additional margin security if required.
4) EFH cannot sell any stock unless the Directors default.
Additional comments regarding detractors comments about the deal. Please read Quindell Echo blog 5th November for more details.
1) Loan to value ratio of 80% has been mentioned. With the inference this would enable Directors to secure an additional loan facility that will not be used to support the business. Two points:
a) Directors have said any loan will be used to support the business.
b) Quindell have not said the loan to value ratio is 80%. It is highly unlikely it is anywhere near 80%. The Directors will not provide this level of detail as it is commercially sensitive information.
2) The credibility of EFH has been questioned.
This is a ridiculous accusation. Quoting obscure negative information is easy to do for any organisation. For example Virgin, M&S, BP, BMW, Microsoft etc, etc have all been involved in court cases. They are all still great companies.
Other salient points
1) The Directors of Quindell are personally liable for any loans. If Quindell shares become worthless the Directors will still be liable for any loan. Currently that’s £2.2m. Plus obviously they will have lost their Quindell investment.
2) Directors are not committing 100% of their shares to secure loans.
3) EFH have no voting rights, cannot transfer, lend or sell the shares.
4) If EFH had rights to sell the shares this would make the Directors of Quindell liable for tax liabilities in excess of the monies borrowed.
5) Directors have to repay loans in 2 years time. Failure to do this means the proportion of shares they provided as collateral become the property of EFH. It is only then that EFH can sell the shares.
It is significant that these are personal loans and the Directors regardless of what happens to Quindell have a significant liability. For this reason it is reasonable to assume Directors will not over leverage and risk losing their Quindell shares.
Now the deal is better understood it confirms this is a significant development and will ultimately have an impact on the share price.