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Dan Shainberg  

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  • Civeo: The Underlying Lodging Business Is Deteriorating [View article]
    They have plenty of liquidity for growth even as a REIT. They guide to leverage of 1.8x vs their own self stated compset of 4-6x (per form 10). Even if they only utilized the very low end of that range, there's plenty of firepower for growth. Plus, if they can get a valuation anywhere within a mile of their REIT comps of over 12x EBITDA, then they have a mighty high barrier to justify operating as a c corp. The CFO is supposed to determine which path creates more shareholder value. I cant see how anybody could justify that unit growth (which may or may not even be available) would generate more value for shareholders versus a REIT conversion. Plus they can always do both. Who said capital for growth needs to come from FFO? They can utilize their liquid balance sheet. I think this article makes some valid points on analysts possibly being too bullish on the cycle, but id agree with joe cornell. Even if you haircut EBITDA aggressively, as a REIT, there's plenty of value here and much more if mgmt utilized their underlevered balance sheet.
    Jun 13, 2014. 11:47 AM | Likes Like |Link to Comment
  • Theravance: Baby Thrown Out With The Bath Water - 35% To 65% Upside [View article]
    Short interest is more likely due to technicality of convertible debt holders hedging their equity derivative within the bonds, not speculators betting against THRX equity price.
    Apr 6, 2014. 04:31 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Thank you. My next article will be on Rentech ( Stock price $2.20/share with a $4.00-$5.00 target.
    Jun 6, 2013. 09:25 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Their strategy was to take out debt to finance acquisitions of new drilling units. Since debt is relatively cheap now, and they can lock in contracts, this is a strategy that some of the younger companies like ORIG are employing to grow to a critical mass. So they have taken out a lot of debt which they are paying interest on, and that is why interest expense is going up. The key is to compare that with the EBITDA they are set to generate from the assets they acquired through the debt financing. Im assuming 9 units next year with each producing around $100mm in EBITDA. So that provides them with $900mm in EBITDA. Since they are guiding to increasing the debt balance even further over the next quarter to fund the last few payments on their acquisitions, the total net debt should be around $3 billion. The associated interest expense for that debt is around $170-$180mm annually. So as you can see, while the interest costs are rising, the EBITDA should cover those required payments with plenty of cushion. I estimate that by 2014, assuming they did not buy or build any new assets, they should be able to convert over 60% of their EBITDA into actual free cash flow after paying for all necessary maintenance expenses including interest, taxes and capital expenditures.
    Apr 25, 2013. 09:57 PM | 1 Like Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Standard Wall Street abbreviation.
    Mar 28, 2013. 06:55 PM | 3 Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    You are using a LTM net debt for a company that is adding 3 new units this year, increasing active units under contract by 50%! This is a very silly way to look at leverage; you cannot penalize them for debt they took out to grow EBITDA but then not give them credit for the new contracted EBITDA set to roll in this year.

    Look at it per rig which is well below the industry average. Or look at it on a pro forma basis where you use the net debt and tie it to the EBITDA from the units they actually bought.

    So ~$2.3 billion of net debt + $1.4bn they recently issued after the qtr close gets you $3.7 billion total net debt for 9 units that produce $90-$100 million in EBITDA each. That is leverage of around 4x excluding material Free Cash Flow generation over the next 12-18 months. The company guided to 2014 leverage of 3.5-4.0x.

    They should be a MLP given their contracted backlog which is very reasonable for MLPs. Competitors in the UDW space like VTG and PACD employ a similar degree of leverage around 4-5x.
    Mar 28, 2013. 06:54 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Notes trade above par leaving you less than that on a Yield basis. Maybe it's a 6-7% Yield and they are likely to refi on their early call dates in 4/2014 and 10/2015.

    Equity trades 50% below replacement value. Catalysts exist for the equity include a buyout, contracted EBITDA growth, Free Cash Flow deleveraging the value from debt-holders to stockholders, and of course the potential MLP conversion with a minimum 4-5% dividend.

    These catalysts could/should pop the equity much more than 6-7%.
    Mar 28, 2013. 06:48 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Cant vouch for investors experiences with Dryships or other Economou ventures. A couple notes though. 1) Nobody was crying about him when DRYS hit $100/share. I certainly wont vouch for management's credibility. 2) But they pay about $10mm to his Cardiff management company a year. Not material. 3) It provides them with the benefit of economies of scale for things like insurance and marketing so it's not entirely fraudulent. 4) The CEO receives no material compensation so even if they pay him $10 million / year for absolutely nothing, that wouldn't dent the investment thesis. 5) Lastly, the discount to fair value of $2-$4 billion is material. I guess you have to believe he will steal somewhere in that vicinity for the thesis to be incorrect. That's Madoff type fraud. Again, I'm not stating that this is a long-term hold but over the next 12-18 months, it is very likely to see the contracts roll on, debt paid down, float increased from DRYS selling, and possibly a nice MLP with a dividend.
    Mar 28, 2013. 06:44 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    Sorry for the confusion.

    You are using book value on the balance sheet as your estimate for NAV. According to management, this under-reports their actual market replacement value given there are lingering accounting related non-cash items that are misrepresenting actual book value that arose due to the nature of the separation from their parent company Dryships.

    You can call IR for the lengthier explanation of this accounting. Im not saying I would agree with them to entirely throw out the accounting book value and just look at market est replacement value, but in this case, my summary title was referring to the market replacement value analysis that ORIG noted on their last few conference calls.

    They estimated replacement value of $850 million per rig. If you look at their 10 units @ $850 million each, that gets you $8.5 billion. Subtract the current net debt of $2.3 billion and the remaining guidance liquidity needed to fund newbuilds of $1.8 billion. Then you see the NAV for all 10 units is $8.5 billion less $4.1 billion pro forma net debt for a NAV of $4.3 billion, or $33/share. Given the stock is trading around $16/share for a $2.1 billion market cap, this is almost exactly a 50% discount to replacement value. Sorry for the confusion.

    Further, this analysis does not give them any credit for the interim free cash flows by the time their 10 units are fully on line by the end of 2014. I'd estimate at least another ~$700-$750 million net Free Cash Flows including fees to refi into a MLP during 2013 + 2014.

    That would increase NAV even further above the 50% discount.
    Mar 28, 2013. 06:36 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    According to Dryships, they need $100 million more liquidity in 2013 and $200 million in 2014. Together this represents around 14% more selling over the next 1.5-2.0 years. This is a "worst case" scenario according to ORIG management's estimates given DRYS is still working on delaying and pushing back on previous agreements to fund looming debt amortizations and payments for new assets.
    Mar 28, 2013. 06:24 PM | Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    According to the company, PBR was a problem for the industry in recent years but they are now expecting them to be a tailwind as their partners in the pre-salt region are growing frustrated with lack of progress on development while exploration costs already financed. According to me, Brazilian customers can be a problem regardless of what management says but we will see.
    Mar 28, 2013. 06:22 PM | Likes Like |Link to Comment