Money Money Money Money Money Moneeeeeee
"For the love of money
People will lie, Lord, they will cheat
For the love of money
People don't care who they hurt or cheat
I know money is the root of all evil
Do funny things to some people
Give me a nickel, brother can you spare a dime
Money can drive some people out of their minds,"
Donald Trump's theme song - could be Vern Raburn's as well.
Trump likes to flaunt money, Vern likes to spend it.
It was probably no coincidence that on the day they were awarded a Provisional Type Certificate, Eclipse announced receipt of another $225 million in funding and a new board member. The new director is an investment banker and the funds from an investment banking group, probably some linkage here as well.
Eclipse stated the total funds raised now exceeds $600 million. I thought they had $475m committed previously and the $225m would bring the total to $700 million. Six hundred or seven hundred million, it doesn't matter. The numbers are so large there is no way the company could pay the debt service (principal & interest) plus the premium for risk by delivering airplanes and applying the full profit margins towards the indebtedness. Some of this debt is probably six years old and the obligation of accrued interest and risk premium would raise the debt load to something over a billion dollars.
A clue to Vern's game plan is in the July 27 press release. The $225m was brought in as a pre-IPO (initial public offering) convertible debt, "...a loan that can be converted into equity at a later date." Here is how that kind of a scenario would work:
Eclipse authorizes $1.5 billion in stock:
$1.2 billion of the paper goes to the investors to repay the loans, back interest and risk premium.
$50 million in paper is set aside for employee (including Vern) stock awards
$250 million is sold to John Q. Public with funds paid to the company.
Then the trick will be for Vern to keep the stock prices up at least as high as the initial offering while he and the original investors bail out at a slow enough rate so as not to depress stock prices.
These are magnanimous people who would like to share their wealth and opportunities with the public. If all this seems too far fetched, consider how executives and other insiders have cashed out of companies by selling their stock in the period between July 2004 and July 2006:
Google $7.2 billion (with a "b")
Carnival $1.2 billion (also with a "b")
Nike $939.2 million
Oracle $881.7 million
Qualcomm $503 million
Source, Business Week Magazine, August 7, 2006, p.11.