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  • MLPs Offer Steady Income And Exposure to Shale Gas Development [View article]
    K-1s are provided to investors instead of 1099s. They make tax filing somewhat more onerous because of their added complexity. Most K-1 recipients use an accountant which is why I suggested $250K minimum (since the accountant will charge for each K-1 processed). Some readers of SA file their own taxes and find K-1s manageable.
    Jan 18 01:04 PM | Likes Like |Link to Comment
  • MLPs Offer Steady Income And Exposure to Shale Gas Development [View article]
    Cerenity, I'm afraid I have no knowledge about Canadian tax treatment of MLPs. Generally the sector is inappropriate for non-U.S. taxpayers.
    Dec 17 03:10 PM | Likes Like |Link to Comment
  • MLPs Offer Steady Income And Exposure to Shale Gas Development [View article]
    stuartweibel, as long as you're comfortable with the cost of filing a tax return with K-1s, $100K is fine. I was just using $250K as a guideline.
    Dec 17 03:09 PM | 1 Like Like |Link to Comment
  • MLPs Offer Steady Income And Exposure to Shale Gas Development [View article]
    The ETFs and ETNs can be a useful access point for small size but all those vehicles impose additional costs and taxes (often significant) on investors in order to convert K-1s to 1099s. MLP closed end funds often trade at a premium to NAV, such is the desire of investors to avoid K-1s. Anybody investing more than $250K is better off investing directly.
    Dec 17 07:41 AM | 2 Likes Like |Link to Comment
  • The EU Should Treat The Dealer As Well As The Addict [View article]
    Yes, I think there are real problem with sovereign CDS since default is really a political decision. I wouldn't be at all comfortable that they provide the protection advertised. And as for the contracts on large sovereigns such as Germany and the U.S., any premium paid is simply a waste of money given the financial landscape that would prevail if they were ever triggered.
    Dec 6 09:34 PM | Likes Like |Link to Comment
  • The EU Should Treat The Dealer As Well As The Addict [View article]
    I agree, I really can't see the justification in permitting naked CDS sales. The regulatory bar is too low. It's hard to show that such activity aids in channeling savings to high ROE projects, and there's plenty of potential harm.
    Dec 6 12:14 PM | Likes Like |Link to Comment
  • Fixed Income Investor's Dilemma: Overcoming The Tyranny Of Low Rates [View article]
    Hi Eclipsme. No believe it or not, only $20 is required to achieve that outcome. 2% dividend yield + 4% growth = 6% total return. Less 15% tax = 5.1%. Compounded over 10 years the $20 equals $32.90 which, added back to the $80 in cash gets you to the same $113.

    Simon
    Oct 14 08:38 AM | 1 Like Like |Link to Comment
  • Fixed Income Investor's Dilemma: Overcoming The Tyranny Of Low Rates [View article]
    Leonbrnt thanks for your comment. How does that strategy differ from selling out of the money put options (i.e. long stock + short call = short put via put/call parity)?

    Not that selling puts need be bad, although possibly cheaper to execute?

    Best regards, Simon
    Oct 14 08:34 AM | Likes Like |Link to Comment
  • Comstock Resources Has Fallen Too Far [View article]
    Yes, no doubt that's true. They are becoming more liquids focused. In terms of cashflow, they need to demonstrate that they can fund their capex internally as they've said.
    Oct 6 06:07 PM | Likes Like |Link to Comment
  • How UBS Mismanaged Its Way To A Profit [View article]
    Believe it or not, there is some underlying logic to the treatment. Assuming rough balance between interest rate sensitivity of assets and liabilities, if an asset falls in value through higher rates and the offsetting liability is not similarly revalued, it will create the appearance of a drop in net equity (the reverse is true as well). So if UBS bought riskless bonds and issued debt to finance them, higher interest rates would cause the bonds to fall in value. Reducing the value of the liability would more accurately reflect their net equity. However, the major flaw in this is if UBS's bonds fall in value not because of a general rise in interest rates but because of a rise in UBS's interest rate - in other words, a widening of their credit spread. There's really no basis for revaluing the liability down if it's fallen in value for company-specific reasons. The current accounting treatment doesn't differentiate between the two, and this is where it's confusing and frankly useless.
    Oct 6 08:47 AM | Likes Like |Link to Comment
  • Borders: Interesting Risk/Return for the Optimist [View article]
    We are not. The potential positive scenarios that existed in May such as a reorganization, sale, or merger to keep NOLs intact are not a possibility today. We exited the position in July immediately following the failed auction.
    Sep 8 08:41 AM | Likes Like |Link to Comment
  • Borders: Interesting Risk/Return for the Optimist [View article]
    ***Correction: Bennett LeBow has 35,130,000 warrants. The updated calculation for the example above would be ($390M +$16.9M + $79M)/133M shares = $3.65 per share
    Jun 24 12:13 PM | Likes Like |Link to Comment
  • Borders: Interesting Risk/Return for the Optimist [View article]
    We really need more details on the structure of the deal, but the DIP would be paid in full. The balance sheet can change in a sale depending on the treatment of the NOLs and not all liabilities have to be paid upfront as in a liquidation process. Shareholders equity is listed at negative $373.6 million as of the end of May, but this doesn't necessitate that the common will be wiped out as the NOL value and “going concern” value is not captured on the current balance sheet. We continue to believe that Borders offers a strategic asset to many buyers, particularly in combination with B&N and continue to like the risk/reward in our investment in the equity of Borders. Capital can be invested anywhere in the capital structure as well as shifted around. In general terms, this is the point of many bankruptcies (i.e. typically shifting debt to equity to make the company solvent again). In Borders case, the absence of bondholders, current low equity value, NOLs, and concentrated ownership (including anti-dilutive options contracts by Pershing) makes it more likely that capital may be provided as debt. This could be provided by the publishers accepting junior debt in place of pre-petition or by one the major shareholders to avoid diluting their ownership stake. If the plan is to go private or merge with B&N, then I think it is even more likely that new capital comes in a form higher on the capital structure than equity.

    -Henry Hoffman
    Jun 21 11:28 AM | Likes Like |Link to Comment
  • Borders: Interesting Risk/Return for the Optimist [View article]
    Hi Mark

    I'm glad to hear you enjoyed the article. Our thesis on Borders remains unchanged and encompasses many scenarios, which, taken holistically still offers a great risk/return. Borders Group offers a very attractive asset for Barnes & Noble and we continue to believe that a combination of the two entities provides the best outcome for all stakeholders and therefore has a reasonable probability of occurring. This is a dynamic and fluid situation, but the reports of recent events are not significant new information, in our opinion. Bidding interest was sure to pick up following Liberty’s bid for BKS and the first extension of exclusivity is typically granted for a business of Borders size. So these were expected. Hope this helps

    Regards,

    Henry Hoffman
    Jun 10 01:29 PM | Likes Like |Link to Comment
  • Borders: Interesting Risk/Return for the Optimist [View article]
    Nathan,

    I am surprised by a number of your comments. First, you have missed the point of this article. It is to illustrate how to evaluate the payoff of an investment in the equity of Borders. Obviously, there are many obstacles Borders needs to overcome for the equity to have value. Surprisingly, you fail to recognize almost any of the significant ones. I point them out in the above article. What makes this situation (and analysis) kind of cool is the variety of possible scenarios that could occur and what the equity would be worth in each. I work through one possible scenario above. Anybody, however, could work out a number of potential outcomes, assess a probability and value to each and incorporate the current stock price to calculate the expected value. You could even place odds on “bidding wars” if you prefer that to analyzing the financials.

    Second, let’s take a stab at calculating a portion of the “real value of their assets.” If you bother to reference the 10-K you will find it hard to support your guess of $300 million of “real assets.” You choose to take the inventory levels as of January 29th (note that these have been updated through the end of April) of $600 million. Let’s work through this. From page 27 of the 10-K:

    “Store Closures: Based upon a comprehensive review of our store portfolio, in February 2011 we initiated a store reduction plan to close 226 underperforming superstores. We expect that this plan will be substantially complete by the end of May 2011.

    These closures will result in a reduction of our future consolidated sales, cost of sales (including occupancy costs), and selling, general and administrative expenses, where certain store operating costs are classified. We anticipate incurring costs in fiscal 2011 associated with the termination of the related leases. Fiscal 2010 sales and operating losses related to the closing stores were $720.4 million and ($68.4) million, respectively, and at January 29, 2011, the carrying values of inventory and long-lived assets were $217.8 million and $30.2 million, respectively. Inventory and long-lived assets relating to these stores will be sold as described below.

    Inventory Liquidation Agreement: On February 16, 2011, we entered into an Agency Agreement with Hilco Merchant Resources, LLC (“Hilco”) to execute the liquidation of inventory and furniture, fixtures and equipment within 200 Borders superstores selected to close by April 30, 2011, as well as certain inventory held in a distribution center. Store closure sales under the Hilco agreement started on February 18, 2011. The agreement also included an option for us to liquidate the inventory of up to 70 additional stores under substantially the same terms, and on March 17, 2011, we exercised this option and elected to close an additional 26 stores. Pursuant to this agreement, Hilco paid us approximately $182.6 million in cash and letters of credit in the first quarter of fiscal 2011. This amount is subject to adjustment upon completion of the liquidation sales.

    During the fourth quarter of 2010, because of the likelihood that the inventory of these stores would be sold to liquidators rather than being returned to vendors or sold directly to customers, we reduced the value of our inventory to reflect an anticipated recovery value less than cost. This charge totaled $69.2 million and is categorized in Cost of merchandise sold (includes occupancy)” in our consolidated statements of operations.”

    So for the $248 million of inventory and property that is being liquidated, Borders received $182.6 million up front. That’s 74% of the value it was carried at. Assuming everything was liquidated on the same terms would yield $470 million, but the rest of the inventory is actually still slated to be sold through the profitable stores (at a profit). You can use this as a starting point in calculating the real value of the assets if you’re interested. I hope it helps.
    May 27 03:20 PM | 1 Like Like |Link to Comment
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