Key points:
- 4D Pharma shares were suspended on Friday at lunchtime
- Then after close came the news that the company was in administration
- The question now is, well, is there likely to be any recovery for equity shareholders?
- Is 4D Pharma just pining for the fjords or is it a dead parrot?
4D Pharma (LON: DDDD) shares were temporarily suspended at lunchtime on Friday. Then after the close of the formal trading day came the announcement that 4D Pharma is now in administration. The question now becomes whether this is simply a bit of pining for the fjords and it'll all work out right, or is this a terminal event and 4D Parma is now a dead parrot. The correct answer is probably that second, this is the end.
Or, at least, the end so far as any value for the equity is concerned. It's unlikely that 3D Pharma shareholders are going to see any recovery from this situation.
As we've noted before about 4D Pharma the company hasn't been having a good time of it. 4D's shares were down 50% already this year for example. There was progress being made upon cancer treatments but this was all still pre-revenue stuff. That doesn't, therefore, aid 4D Pharma's capital structure.
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The problem was that capital structure. 4D Pharma didn't have sufficient equity capital to be able to complete their work. So, they gained access to some debt. But the problem with debt is that it has to be repaid. And if it looks like it might not be repaid then the owners of secured debt have the ability to insist upon claiming their security. Which is what happened here.
At 12.30 on Friday 4D Pharma asked the exchange to suspend trading in their shares. The announcement was full of how they're doing great work and are a world leader in the development of live biotherapeutics. Which is very nice, but that announcement didn't really tell us why the suspension was asked for.
That news came at 18.22, well after London was closed but while NASDAQ was still trading of course. That announcement was then that the company had been put into administration.
The story is that 4d Pharma had entered into a loan arrangement. A senior, secured, credit facility with Oxford Finance, worth up to $30 million. The initial tranche of $12.5 million was advanced back a year ago. The company knew that it needed more finance and was looking for it – but didn't seem to find it. At which point Oxford Finance asked where their money was? The $30 million was an up to and conditional thing, the $12.5 million ($13.86 million with interest and fees added) was real money that had been advanced. So, how was that going to be paid back?
Given the lack of alternative funding sources, 4D Pharma didn't really have the ability to repay. So, Oxford Finance put the company into administration – they can do that of course. Further, their security will be the assets within 4D Pharma. It's only if those assets turn out to be worth more than the $13.86 million owed that there will be any return to shareholders – that's what happens in administration, creditors first, equity last.
So, will there be any recovery for 4D Pharma shareholders? It has to be said that it seems unlikely given that if there was substantial value in the company's works and patents then there would have been little difficulty in raising the extra capital. Barring substantial new information 4D Pharma therefore needs to be classified as a dead parrot, not just a Norwegian Blue pining for the fjords.