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Ted Barac  

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  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi Munger fan,

    Fair point that the comparison is static and doesn't capture that the preferred payments will step down (which is definitely something that investors need to keep that in mind) or other expected trends (apart from the $12mn in expected divestiture synergies for newco).

    I believe that the mandatory debt payments, on the other hand, are something that directly and commensurately benefit shareholders, so I think it's fair to represent them under my definition of discretionary FCF (even though the debt payments are, in fact, mandatory).

    With respect to maintenance capex, I define it as how much a company needs to spend to stand still financially (not a breakdown of which $'s go towards new versus old projects). For example, if 100% of CAPEX goes towards new customer/projects and the end effect is that revenues and EBITDA only stand still (as these new customers are only offsetting lost revenues in other parts of the business), then I would still consider it all to be maintenance capex. In other words, the "maintenance" refers maintaining the financials and not maintaining the existing infrastructure and customers.

    All that said, my estimate for maintenance CAPEX is very rough (back-of-the-envelope) and purposefully conservative. In reality, the actual number could be considerably lower.

    Thanks for the great comments and dialogue. You're bringing up some very relevant and important issues to clarify.
    Dec 8, 2014. 02:12 PM | Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Great points, munger fan. I define "discretionary" FCF as FCF available to benefit shareholders (e.g. pay down debt (even if it's mandatory), make investments in growth CAPEX, pay dividends, etc). I should have clarified this, as people can define it differently.

    On the issue of maintenance CAPEX, I'm very conservative in making that estimate and, as a result, I could very likely be considerably overstating that amount. That said, I prefer to err on the side of conservatism (assume they need to spend more than they do, rather than the other way around). Estimating maintenance CAPEX is very subjective (more of an art than a science) and everyone should make their own estimates with which they are comfortable.

    How much annual CAPEX do you think that they need to spend to keep revenue and EBITDA constant?
    Dec 8, 2014. 12:38 PM | Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Absolutely, and they expect an additional $8mn in synergies (above the $4mn) from the divestiture ($12mn in total; all of which is included in the pro-forma EBITDA for newco in the article's spreadsheet).
    Dec 8, 2014. 11:49 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]

    Further to my initial response (below) to your question about the dividend: In re-listening to the comments about a potential dividend from Friday's conference call (there was a direct question about it), the company basically responded that they had created a perfect set of conditions (e.g. growing revenues, low leverage, increasing EBITDA) such that the board can now focus on all the things they can do to increase shareholder value. They also stated that the debt agreement has a 3.5x leverage threshold for dividends (and they will be at 3.1x).

    So, they seem to be implying that a dividend is something that the board will consider following the closing of the transaction. Again, I wouldn't count on this, but it does seem like a possibility.
    Dec 8, 2014. 11:39 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi II,

    The cost of running the retail side of the wireless business (SG&A for retail stores, etc.) exceeds their revenues for that business by $4mn. So, they are running that business for a $4mn loss (a loss which will go away following the divestiture).
    Dec 8, 2014. 11:21 AM | 1 Like Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Hi Nick,

    Thanks for the comment and kind words. Given the company's limited pro-forma free cash flow, and their recent focus on de-leveraging, I don't see much likelihood for a dividend in the near-term. It's always a possibility, but not something I would count on or expect when considering an investment in ALSK. At this point, I do think that they are better off putting money towards CAPEX and further strengthening their business.
    Dec 8, 2014. 09:52 AM | Likes Like |Link to Comment
  • Junk Bonds: Go Active, Or Don't Go At All [View article]
    Any evidence to support these conclusions? Seems that passive strategies are actually best for illiquid markets -- where the wide bid/ask spreads would disproportionately hurt the active managers that trade more frequently and have to pay these high (and hidden) transaction costs. Of course, there are some active managers that will outperform, but I suggest that most investors don't have the time, tools, or inclination to predict which ones will do so (as past performance doesn't predict future performance). As with other asset classes, I suspect that the active managers (in aggregate) will underperform the indexes. Would be very interested to see and evidence to the contrary, though.
    Dec 4, 2014. 10:45 AM | 1 Like Like |Link to Comment
  • A Farewell To Seeking Alpha, And To All Of My Followers [View instapost]
    Sorry to see you go, B.E. Best of luck in the future.
    Nov 25, 2014. 03:06 PM | 1 Like Like |Link to Comment
  • Pity The Hedge Fund Manager [View article]
    "The 2/20, which is much maligned, really isn't a terribly bad arrangement for anyone that has had a managed account kind of experience. There's especially something appealing about having your fund manager be aligned with your interests."

    I would (and do) argue that the 2/20 arrangement doesn't align interests very well, at all:
    Nov 9, 2014. 10:28 PM | 1 Like Like |Link to Comment
  • The 401K Scam [View article]
    Since employers typically match 401k investments, up to a certain level, you are starting off with an automatic 100% gain on those 401k investments that qualify for matched contributions. I hope you aren't advocating that investor forego those matched contributions with the expectation that they'll do better by directing that money towards annuities.
    Sep 16, 2014. 01:19 PM | 14 Likes Like |Link to Comment
  • Why Twitter Investors Were Just Duped [View article]
    "Twitter's monthly active user base is one-fifth the size of Facebook's (NASDAQ:FB). And its revenue per user is 50% lower.

    Yet Twitter trades at a 44% higher price-to-sales (P/S) ratio."

    Tiny companies with small user/customer bases can (justifiably) have high P/S ratios and vice-versa (large companies can have low P/S ratios) as the metric is largely correlated with expected sales growth and isn't meant to be (and shouldn't be) correlated to the absolute size of the existing customer base.

    The "S" of P/S ratio already captures both the lower size of Twitter's user base and their lower revenue per user.

    Since P/S more correlates with expected revenue growth rates, and not absolute size/user-base, consider that Twitter's expected revenue growth for '14 and '15 is roughly double that of FB (per analyst estimates, for what it's worth). I think that's what's really more relevant when looking at the P/S ratio.
    Aug 6, 2014. 10:32 AM | 1 Like Like |Link to Comment
  • Why We Love Premium Bonds And You Should Too [View article]
    Thanks for the response, Larry. I agree that bond yields and risk are very highly correlated and that's great if you're finding bonds where these supply/demand issues are causing price/yield discrepancies to your advantage.

    Thanks, again, for the article and dialogue.
    Jun 26, 2014. 03:13 PM | Likes Like |Link to Comment
  • Why We Love Premium Bonds And You Should Too [View article]
    Thanks for the article. Do you not find that these factors largely net out?

    For example, when you buy at a discount you may have to pay taxes on the discount (a negative), but you are also paying taxes on a lower coupon/interest payment (a positive). The reverse being true when you buy at a premium (paying taxes on a higher coupon, but being able to write-off the premium amortization).

    In other words, shouldn't the net tax obligation on a similar yielding bond bought at either a discount or premium be the same with the premium/discount offsets just equalizing things -- given the different coupon payments for similar yielding instruments -- from a tax perspective? Or is their something with the different tax rates that makes buying a premium bond advantageous from a tax perspective?

    Also, for premium bonds isn't the duration going to be priced in the same as it would be for any other lower duration bond (i.e. you will get paid commensurately less -- as with other lower duration bonds -- given the upward slope of the yield curve) and isn't duration going to typically be driven more by the maturity date than the premium/discount factors (i.e. can't you just as easily, and at the same yield, buy a shorter maturity bond if you want the lower duration)?

    In other words, is there something uniquely beneficial to getting the lower duration via the purchase of a premium bond (versus just buying an identical bond with a shorter maturity)?

    Finally, don't forget that credit risk is higher for premium bonds (versus an identical bond selling at a discount) because loss-given-default recovery rates will be lower -- as bondholders are paid a percentage of par value in recovery, irrespective of how much they paid for their bond. I think that this is a very important consideration, particularly as you go lower down the credit spectrum.
    Jun 26, 2014. 10:03 AM | 4 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the follow up, dsc20601. Yes, both AT&T and Verizon have economies of scale with respect to roaming, etc. which need to be considered and, as discussed in the article, Verizon has yet to fully enter the retail market in Alaska. These are well know issues which have contributed to the sell-off in the shares -- but very relevant and real risks nonetheless.

    The pension issue is not really that material (less than a $4mn deficit at YE 2013).

    Thanks, again, for the dialogue.
    Jun 25, 2014. 11:17 PM | 2 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment, dsc20601. I always appreciate hearing the bearish view on a position that I hold.

    A few quick points:

    -- The loss of Verizon's roaming revenues is already reflected in the current financials and any legacy roaming revenues that remain are now part of AWN.
    -- ALSK, with their nationwide plans, also doesn't charge roaming fees to the lower 48 states.
    -- Voice wireline (which is the wireline segment that is really in secular decline) comprises only about 12% of ALSK's revenues. Broadband is growing nicely and is a much larger segment for ALSK.
    -- I don't share your belief that 5G will eliminate the need for landlines (i.e. no one will have DSL internet or cable internet connections), but long-term technological risks are certainly a concern for any telco player.
    -- The union costs associated with AWN would already be factored in when consideration was made for the economics of the AWN-deal and the resultant ownership shares and profit sharing considerations.
    -- Not sure your point about the financial restatement (are you saying that management isn't to be trusted?). Please elaborate.

    Where I agree with you is in the fact that Verizon's entry into the Alaskan retail market will impact their wireless business and the competition in that market is high and getting worse. While they now have less exposure to wireless and this threat (because of the AWN deal), their resultant higher concentration on the wireline side of the business definitely present concerns of its own. I also agree that refinancing risks are a valid concern.

    There's no doubt that there are a lot of financial and competitive risks with ALSK. The question is whether or not those risks are adequately incorporated into the share price and whether or not risk/reward for the shares is attractive at current levels, after the massive sell-off over the past year (and that's where we obviously disagree).
    Jun 25, 2014. 09:37 AM | 1 Like Like |Link to Comment