Most Recent Newsletter as of today by Danny Deadlock
Environmental Service (EVSP. Pinks $0.28)
One subscriber who caught this filing last night summed it all up... "this dramatically ups the Ante in the Pot". This document was filed with the SEC late Friday. Headline as follows:
Item 2.03. Creation of a Direct Financial Obligation.
On July 28, 2010, Environmental Service Professionals, Inc., a Nevada corporation (the "Company"), received confirmation that the Letter of Credit issued by Metropolitan Financial Holdings for the benefit of Environmental Service Professionals, Inc in the face amount of $200,000,000 USD to secure a loan (the "Loan") in that amount expected to be made to the Company by a third party lender has been sent and received by the lender's bank. The Company now expects the Loan to be made to it in approximately five to fourteen (5-14) banking days or less. The net proceeds of the Loan are expected to be approximately $ 150,500,000 USD, after prepayment of all interest and payment of Letter of Credit and Loan origination fees. Prepaid interest and origination fees were deducted from the gross proceeds of the Loan.
The Loan is evidenced by a secured promissory note in the principal amount of $200,000,000 USD, bearing simple interest at the rate of 4.75% per annum and having a maturity date one year and 30 days after the date of the Loan (i.e. August 28, 2011). The Loan interest is payable in full on the date of funding, which was deducted from the Loan proceeds and principal in full on the maturity date in US Dollars. The Loan is secured by a Letter of Credit from an international bank having a commercial rating of BBB+ or better, in the principal amount of $ 200,000,000 USD, having a term coinciding with the term of the Loan. The Company is paying separate compensation to the provider of the Letter of Credit for making it available to the Company to pledge for this transaction.
This is something I have never seen before - a smaller company trading on the pink sheets (of all places), arranging a non-dilutive financing for $150 million ! The loan does not come without cost. The interest rate at 4.75% is very attractive, but the investment bankers and another party that are likely back stopping the deal, will make over $30 million.
I was shocked at the money they will make but when a person thinks about it, would you lend $150 million to just anyone ? It's a very complicated process that has obviously taken months to structure and do a risk assessment on. The parties involved must feel the business model could absorb the high fees or they in all likelihood would not have put this together.
In addition, this is not one of the self-destructive convertible instruments I have seen done (that end up issuing insane amounts of stock), and this wasn't a direct equity deal that would have required issuing 500 million shares (or worse).
EVSP must have one heck of a business plan to execute if they were able to pull this one off ! As a result, I personally plan on "upping the ante" a bit, even into the $0.30's if necessary (and if possible) this week. I will feel more comfortable when I know the money is in the bank (estimated at 1 to 2 weeks), but don't mind treading into the water a bit deeper at this stage.
From previous research, I understood (if they were able to raise enough money), they would use it for a National rollout of their business (again, focus on hiring war veterans), and also to make several key acquisitions that gave them immediate market penetration and proprietary technology.
From what I have read, the Obama government provides extensive funding (even in the way of non repayable grants), for business involved in job creation, the environment, and assisting disabled vets in securing long term employment. These are all parts of the evsp business model. With the necessary funding underway, they may be capable of building something very substantial here.
My speculation is that this company will not stay on the pinks for long. In fact, if this proves successful (even if it takes into 2011), I could see them taking a run at an Amex or NASDAQ smallcap listing. Under this scenario we would see a dramatically higher share price.
Friday's trading saw volume of 689,847 shares - of this, 53% was shorted by the market maker (as tracked by buyins.net). I believe this puts the total short position at well over 4 million shares. The market maker can only continue to do this for so long, before they will have to come up with the paper to cover these sales they have been making without owning the paper. Will this filing be enough to motivate them ? Who knows. If they don't start covering the outstanding positions, they will have no choice if and when the company moves to a larger exchange. This in itself can fuel a lot of buying.
I guess we still run the risk this could come off the rails before the money hits the bank, but if all goes through as I suspect it will, the stock in all likelihood will be even harder to buy at a decent price. I heard from several subscribers this past week who were able to buy on the pinks through BMO, HSBC, and a couple other discount brokers. Obviously this process has changed in the past year - since I last tried buying on the OTC or Pink sheets. Good to see.
So long story short - this was fantastic news. It will be interesting to see how the market makers handle trading with this filing now in the system. I personally don't mind adding to my position in the $0.30's but not higher until I know the money is in the bank. Also remember that this was not a "news release" from the company. It was a formal filing of an 8k with the SEC. A formal news release will likely come during the week sometime.
After the money hits the bank, I suspect we would see a fairly steady flow of news as the money is put to work. In all likelihood we would follow this one through the newsletter into 2011 (unless something crazy came off the rails). It would be exciting to watch a small company grow into what could become a fairly large business with offices across the United States.