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  • Money To Be Made In The Final Chapter Of Arctic Glacier 8 comments
    Jul 11, 2012 10:24 PM | about stocks: AGUNF.PK

    Arctic Glacier (AGUNF) has a storied history. It is a packaged ice manufacturer based in Winnipeg and grew into the 2nd largest packaged ice producer in North America. Growth was funded through leverage and free cash flow. Due to serious management missteps in 2010 and 2011 the company saddled itself with an unsustainable capital structure and filed for bankruptcy in Canada in February 2012.

    So how do we make some money here with the stock hovering at 19 cents / share, and the company is in bankruptcy? This is not your ordinary bankruptcy where the equity holders get wiped out. In this case, I expect there to be a substantial cash distribution to the equity in the amount of $0.27 center/ share (35% gain). The stock historically traded over $10/share pre 2008.

    I will save the details on the bankruptcy. But for those who are interested you can go to this website to see all the documents (including the prolific monitor reports): alvarezandmarsal.com/arcticglacier. I took the liberty to read the docs to better understand the situation. In March 2012, Alvarez and Marsal, the monitor, held an auction of the company. The company received several bids including one from a competitor, Reddy Ice. In the end, a private equity firm, HIG Capital, received court approval to purchase the company for a price of $435mm. (Arctic Glacier disclosed this price last week which explains the run up in the stock).

    To figure out the value to the equity, we need to figure out the net proceeds after paying all the claims and decipher the definition of purchase price. It took time to compile the information as I had to read hundreds of pages of bankruptcy docs to piece it together. But this is what I figured out:

    Total Proceeds from sale of Artic Glacier: $435.0

    Less:

    Debt (accrued and premiums) (292.8)

    Administrative Claims: (5.7)

    Direct and Indirect Purchasers Claims (18.0)

    DOJ Payment: (7.0)

    Retail Purchasers Payment (2.0)

    Arizona Buyout Payment (12.5)

    Other Post Closing Claims (est) (5.0)

    Plus: Cash (5.0)

    Total Available to Equity holders 97.0

    FD Shares outstanding 353.0

    Distribution / Share $0.27

    So building a position at 19 cents for a 30%+ return is interesting as this will not be correlated to the market as it is a liquidation. There could be additional upside to this number if the company monetizes its other assets: tax refunds and a property in New York state. The sale of the company is expected to close at the end of July. After claims are finalized (including potential tax claims from the asset sale), a distribution to the equity ought to occur thereafter.

    Disclosure: I am long AGUNF.PK.

    Additional disclosure: I intend to build a position at this level.

    Themes: bankruptcy, packaged ice, low priced, liquidation, reddy ice, uncorrelated Stocks: AGUNF.PK
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  •  
    Thanks for the post. I had a question regarding the $20 million number for the purchaser claims. From the filings I only see $12 million of liability from purchaser settlements- $10 million for the US direct purchasers and $2 million for the Canadian direct purchasers. Is the other $8 million an estimate of liability from some of the other outstanding suits?
    5 Jul 2012, 09:52 AM Reply Like
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    It is a conservative estimate. There is an indirect purchasers lawsuit which should be settled as the direct purchasers settled for $12mm. $8mm is a conservative estimate as indirect purchaser claims are generally settled for much lower than half of the direct purchasers claims.
    5 Jul 2012, 10:34 AM Reply Like
  •  
    There will be tax implications that nobody is considering. They will have to write a tax check to Canada that will eat into equity returns.
    9 Jul 2012, 08:42 AM Reply Like
  •  
    Considering the taxable losses the company has posted in the last 4 years in addition to the book value of the assets the tax leakage should be very minimal.
    9 Jul 2012, 10:04 AM Reply Like
  •  
    I hope you are right, but I am not sure those NOLs can apply to an asset sale. You have to look at the basis of the assets. Where did you come up with the amount for the Admin claims? Arizona Buyout payment?
    9 Jul 2012, 11:32 AM Reply Like
  •  
    Can you share which documents you used to establish your estimate of claims? Thanks
    9 Jul 2012, 07:13 PM Reply Like
  •  
    DD Investor,
    I'm not very familiar with Canadian trust taxes. Can you provide any source for your comments about the NOL not applying against capital gains? Thanks.
    10 Jul 2012, 02:22 PM Reply Like
  •  
    Isn't the Arizona lease an Assumed Liability?

    Also, what's your estimate of cost base or UCC of the assets? Thanks
    11 Jul 2012, 12:42 PM Reply Like
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