Stilian Morrison

Fortress Paper: High Yield Paper Made Cheap (And Safe)

INVESTMENT THESIS OVERVIEW

Fortress Paper's (FTP.TO) 2016 convertible debentures (FTP.DB) offer an attractive ~16% yield to maturity in the high 70s at 120% sum-of-the-parts coverage and 67% liquidation coverage at maturity due to a recent asset sale which has greatly improved the Company's financial flexibility. CEO Chad Wasilenkoff owns 17% of Fortress's common equity and is highly incented to pursue a buyback of the debentures rather than gamble his $17MM equity stake (at today's price) on capital intensive investments into the Company's tepid dissolving pulp (DP) market. Our conversations with management give comfort that they are benchmarking future capital allocations against the attractive hurdle rate set by the debentures. Following Q2 earnings, the Company announced a normal course issuer...

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