SouthShore

Review of Current Losing Positions: NZT, ACAS, SKM, GE

The above assesment of ACAS is off the mark. I would challenge the Einhorn book and refer anyone to the following link: www.deepcapturethemovi.../ for an alternate view.

ACAS is no different than any other company holding private businesses and loans in their portfolios. With the implimentation of fas157 level 3 assets (those not readily traded) are valued based on recent sales. Thus, of course if no one is buying, then the values of these investments must be marked down to ridiculously low levels.

However, the majority of these private businesses and loans will be held long term and provide stable interest or dividends to ACAS. When liquidation by over-leveraged hedge funds ends and the market fear subsides, then there will be a reversal of the valuations. That is when those short will become longs.


What you believe is up to you........... do your own DD.

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* The actual issue, IMO, is the rising cost of capital.

REITs, BDCs, MLPs, etc., that pay out most of their income rely on secondary offerings, preferreds and convertibles, and sell-downs of mature assets to pension funds for new capital to fund their business's growth. However, they all have variable ratios of fixed and/or variable rate debt.

1. New fixed rate debt will be harder to obtain and more costly.
2. Secondaries will be less accretive to NAV, OR even dilutive if required to capitalize unfunded commitments.
3. Convertible or preferred share offerings will likely be less attractive.

On the down side, these businesses may face slower growth prospects combined with decreased demand for their underlying assets (REITs = mortgages, leases, etc.; BDCs = private businesses and loan market; MLPs = pipeline volumes) resulting in decreasing earnings growth, decreasing NAVs, and falling dividend/distribution coverage. Dividends for some securities and CEF's, even while "banked" from prior years may reduce NAV in the short term.

On the positive side, those BDCs and REITs with capital can take advantage of the more favorable lending environment and distressed securities/loans. Those MLPs with a greater fixed rate debt ratio, longer terms on debt, lower unfunded commitments, and higher regulated percentage of business will benefit. Buying into the best companies at attractive yields will position one for multiple years of attractive gains. Look for a reversal in NAV when the hedge funds have finally de-leveraged / liquidated.