News
Getty reports receiving default notices
(Much Ado About Nothing, but When It Rains, It Pours)
In an 8-K filing with the SEC dated November 29, 2006, Getty Images (NYSE: GYI) reported receiving default notices from some of the holders of the company's 0.50% Convertible Subordinated Debentures. The default notices pertain to 29% of the aggregate $265MM amount of the Debentures, or $76.9MM. The lenders assert that Getty has defaulted on the Debentures because it has failed to file its Form 10-Q with the SEC on schedule. The notices allow Getty sixty days to cure the default.
To state the situation more simply, Getty borrowed money under terms which, according to the lenders, require Getty to submit its quarterly financial results to the SEC on time. Several weeks ago, the company announced that it had delayed filing its 3rd Quarter '06 results pending the outcome of the SEC's investigation into possible share options back-dating by Getty management.
The action will likely have no legal consequences for either party nor is it likely to result in a forced pay-down of the loan. There is little question that Getty will not cure the default (i.e., file its 10-Q for the 3rd quarter) within 60 days of the notice. The lawyers for the lenders are simply taking the necessary precaution of filing the notice on the chance, though clearly remote, that on the sixty-first day, Getty still hasn't made the filing. Getty disputes, however, that the terms of the loan stipulate Getty must file the Forms 10-Q according to a schedule.
Despite their appearance as a "non-event," however, the notices still cast a shadow over a company already grappling with disappointing results this year and the SEC back-dating investigation. By law, Getty must notify the SEC of all such default notices. To the Market, the words "Notice of Default" have an ominous ring that can only have a negative effect on the company's stock price. Getty's shares, which have, for the last several weeks, hovered near their 52-week low, dropped from $44.60 on Wednesday, November 29, the day Getty made the news of the default notices public, to close the end of the week at $43.21.
Posted in: News, Stock Photo Companies
