I am sure many noticed that the preferred shares of lodge REIT Ashford Hospitality (AHT) took a real hammering on Friday. 4 issues closed in the $4.xx area with 1 issue closing at $5.39.
Of course the shares had been trading down in the $5-$6/share area on Thursday before heavy selling came in on Friday—obviously investors are bailing out when they can get a few bucks–because there is a very real chance the company will be walking away from ALL of their hotels in the next 60 days.
This is a lodging REIT which has over $4 billion in debt and they are making NO debt payments at all right now. Most of the debt is ‘non-recourse’ meaning they can walk away from the debt and turn the keys back to the lender.
AHT recently did a 1 for 10 reverse stock split on 7/15/2020. Common shares closed at $5.74 the day of the reverse split and now are trading at $3.92—as usual with a reverse split shares continue lower after the split.
In a last ditch attempt to survive the company proposed an exchange offer for all of their preferred shares outstanding–more than 20 million shares in total. A TINY amount of the offer is to buy shares for cash ($9.75/share)–a total of $30 million, while the balance of the offer is for 2.64 shares of common in exchange for each preferred share–more than 59 million new common shares. The company would go from 10 million shares outstanding to around 70 millions shares.
With the common at $3.92 now–fully diluted maybe it is worth 50 cents–making the exchange offer worth around $1.25 per preferred share. Those preferred holders which do not exchange shares will be automatically converted to 1.02 common shares.
Strange things happen but without a federal bailout AHT is dead!!