Nice upgrade from Moody’s on Friday to go along with the S&P upgrade from June 19th. HGR has $200M long term debt out at 10 ¾% and $150M of short term debt out at LIBOR plus 1.5 (or about 3.5%). According to their financial statements, if they pay down debt, they have to pay it half and half. Meaning half of the long term and half of the short term debt would have to be paid off when taking out debt.

Debt/EBITDA at the end of each year:
2005 = 5.0x, 2006 = 4.75x, 2007 = 4.20x, 2008 = 3.55x
HGR will end 2009 at about 3.00x debt/EBITDA. That’s why they are getting upgrades! They have consistent cash flow and have NEVER even come close to breaking a covenant.

If they did a secondary at $15.00/share and sold 10M shares, they could pay off $75M of short term and $75M of long term debt. If they sold 20M shares, they could pay off all of the short term debt and $150M of the long term debt. Either of these deals would be accretive. The 1st scenario would bring debt/EBITDA down to about 2x and the second would bring debt/EBITDA down to less than 1x! Another 10M or 20M shares would certainly help the float as well.