So this is what happens when you don't do enough homework! I got into BNHNA yesterday. I thought I'd done my due diligence by carefully analysing the balance sheet for a few days before getting into the trade. In fact, I pretty much looked at the entire restaurant industry and thought I'd gotten into a position with one of the best risk:reward ratios and strong fundamentals. It turns out there was one minor detail that I missed and it's usually the minor details that get you, isn't it?
Apparently, BNHNA shareholders have been enmeshed in a merger battle where the issuance of 12.5 million shares of Class A stock is at stake whilst Wachovia had cut BNHNA's credit facilities from $60 million to $40.5 million. This is set to continue decreasing throughout the year. Moreover, BNHNA's full outstanding debt balance is due on 15 March 2011.
If the issuance of 12.5 million shares goes through, book value will decrease from $9.941 per share to $5.487 per share. It seems some of my calculations have been off lately for various reasons, so do your own homework...
The big question is whether they will be able to pay back their outstanding debt in March 2011. Their EBITDA was $27.5 million, which just about covers their outstanding debt obligations, but if the share issue doesn't go through, this position will literally be a double edged sword.
Gosh! It's a good thing I didn't order a lot, but this is enough to make investors lose their appetites.
I'll wait and see if it tests its 52 WL again.
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