How will OPTI restructure?

OPTI Canada (TSX: OPC) is an oil sands producer that is facing insolvency. They have $2.6 billion in debt and they have failed to make an interest payment on their secured notes.

Suffice to say, the equity is trading in anticipation of it becoming worthless (presently 10 cents per share, which is about 9.99 cents over-valued at present).

The company has first-lien notes which as the name suggests, is a first claim on the assets of the company. Those bonds (US$825M face value outstanding) are trading at nearly par. The senior secured notes ($1.75B outstanding) are second in line and are trading at 40 cents on the dollar. Senior to all of this is a $165M line of credit.

OPTI obviously has leveraged themselves too deeply and their shareholders will be taking a large bath on their investments. The question is how the company is going to get carved up, with the first lien debtholders having the trump card – they will negotiate the senior secured noteholders a deal to salvage some value for them to expedite the uncertainty caused by creditor protection.

For retail shareholders, probably the best thing for them to do is to sell their shares, take a capital loss, and get on with life. If the company formally declares bankruptcy, the shares will be halted on the TSX and it will become much more difficult to dispose of the security and take the loss.