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laterre

laterre
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  • Insider Buying And Effect On Dividend Due At Western Asset Mortgage Capital Corp. [View article]
    Betcha they raise to .75...and then do an SPO after ex-div.
    Sep 16, 2014. 07:27 AM | 3 Likes Like |Link to Comment
  • Update: Closing My Long Thesis On RadioShack Following The Q2 Earnings Call [View article]
    Congrats on the 60% gain. The tell on the bs rumour (and ensuing short squeeze) was that the bonds scarcely moved.
    Sep 13, 2014. 09:33 PM | Likes Like |Link to Comment
  • Breaking It Down: RadioShack Corporation's Q2 FY 2015 Earnings Call [View article]
    That quarterly statement was dire indeed: my read is that the "best case" scenario at this point is an additional capital injection in conjunction with a pre-pack Ch.11, and the "worst case" is a Ch. 7 liquidation. They're going to restructure, as should have been obvious all along, and the common equity is now officially a call option that they'll feel compelled to throw equity holders a bone and let them share 5-10% of the newco equity.

    Assuming there is even a Newco...the fact that they put the possibility of a total, doors-closed Ch. 7 liquidation on the table is alarming.

    Glad I banked all the profits from the short squeeze...
    Sep 13, 2014. 01:11 PM | Likes Like |Link to Comment
  • RadioShack: Buying The Stock Outright Is Still A Losing Proposition. But With Downside Protection, It Is Becoming A Viable Bet [View article]
    Ah, so many stories and rumors over the years on this one...just when you think they're on the ropes, they pull another one out of their rear end.

    SG may successfully refi the credit line, and possibly issue some more shares to keep them afloat for another year or two. But as far as the price action, I think most of this frenzy really is short covering and momo chasing. Significantly, the unsecured 2019s haven't moved up nearly to the same extent as the equity. Curious how the CDS are trading.

    I'll buy the rumor, and sell the news on this one. Closed 1/2 position on my Calls and rolling back into some long-dated Puts.
    Aug 27, 2014. 02:24 PM | Likes Like |Link to Comment
  • RadioShack: Buying The Stock Outright Is Still A Losing Proposition. But With Downside Protection, It Is Becoming A Viable Bet [View article]
    Here's to playing the best risk-reward at any given time!

    I'm considering cashing out part of the ill-gotten gains from the short squeeze, and going short again now that Puts are cheapening up a bit...
    Aug 27, 2014. 10:25 AM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust: Regulatory Fears Unfounded, While Units Yield 15% And Sell At A Discount [View article]
    Hey REDI,

    Thanks for the generous response and clarifications. Respect for this illuminating exchange and defense of your thesis, which is exactly what SA should be all about! You've found an interesting situation, and I sincerely hope that it plays out exactly as you anticipate.

    For me, though, I prefer to dumpster dive not in the market stage of "Denial" but that of complete and utter "Capitulation," and I'm just not feeling that here yet. With the Puts, you're covered, though.

    Will look to revisit this when November roles around...

    GLTA
    Aug 25, 2014. 10:20 AM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust: Regulatory Fears Unfounded, While Units Yield 15% And Sell At A Discount [View article]
    Thanks much for the follow up, REDI.

    With all due respect, I just don't find your investment thesis persuasive, at least at current price levels.

    You assume several things:

    1) The measure itself won't pass because your average Santa Barbara voter cares about tax revenues. I think this is dubious. Santa Barbara voters are college students, hippy millionaires, and yoga moms. If you think that voters are going to parse the budgetary nuances of a bill that purports to ban fracking, you are being extraordinarily optimistic. But only time will tell.

    2) You assume that the ban doesn't facially affect what ROYT is doing. It clearly does affect it. It explicitly bans cyclical steam extraction techniques like those used by ROYT. At minimum, it constrains new development (whose effects you've not quantified, and which have to be material). At maximum, it can be construed (and will be by supporters and their attorneys) as precluding current activities. It is rational strategy for them to deny this now, but once the legislation is passed, they have every incentive to try to stretch it to curtail existing production.

    3) You assume that a CA court will see things in a rational way that supports vested property rights. We have all kinds of evidence of municipalities using referenda and zoning regulations to constrain property rights, and courts backing them on this. You disavow legal expertise, but your thesis rests on it. Moreover, even if you are correct, there are legal costs to be borne in terms of hashing out the effects of this legislation. Unless I'm mistaken, ROYT discloses these potential legal costs as a "risk factor" that could very well eat into royalty income payable to unitholders. One doesn't have to be a lawyer to see this issue as a major risk factor.

    4) You assume that management is properly incentivized and aligned with unitholders. I'm skeptical. Parties connected to this enterprise cashed out big time just before this issue emerged (coincidence?). These royalty trusts are rife with conflicts of interest, and their very existence in many cases stems from the desire to offload legal risks or declining assets onto yield-hungry retail investors. While ROYT is not as self-evidently flawed as others you identify, its performance since being spun off is hardly reassuring.

    If you are wrong about any one of these assumptions, the price goes to low single digits immediately. I've always found it more helpful to try to imagine what the worst possible outcome is, as a way of trying to falsify one's thesis.

    Why not wait to scoop up on the capitulation if/when the Measure passes in November? Even if you are right about the ultimate implications for ROYT, the headlines will be ugly and scare out many longs.

    I would only buy this after a further shake-out, but good luck to all.
    Aug 24, 2014. 10:54 AM | 2 Likes Like |Link to Comment
  • Pacific Coast Oil Trust: Regulatory Fears Unfounded, While Units Yield 15% And Sell At A Discount [View article]
    Good point that "fracking" is a non-issue. But they do use cyclic steam injection, which the Bill clearly prohibits.

    From the text of Measure P:

    “Secondary and Enhanced Recovery Operation” means any operation
    where the flow of hydrocarbons into a well are aided or induced with
    the use of injected substances including but are not limited to the
    introduction or injection of water and natural gas, steam, air, CO2,
    nitrogen, chemical substances and any other substance or combination
    thereof. Examples include waterflood injection, steamflood injection,
    and cyclic steam injection."

    Two questions to consider: (a) does the "vested right" to continue existing production imply the right to continue doing so using the current methods (i.e. by cyclical steam), or might a wacky CA appellate court rule that one can indeed continue oil production but that this production must be done using technologies that are lower pressure (i.e. un-economical)? (b) you assume that production being constrained to existing wells isn't such a big deal. But doesn't this considerably reduce the ability of the trust to replenish reserves by means of new drilling even if, as you say, the royalty % on the new wells is lower than on existing wells? Can you quantify this potential effect on PV? Suffice it to say that it's not zero.

    Also, what do you make of the related party selling off their shares in the recent offering, and their own risk disclosure language on this referendum issue?

    If someone wanted to take a flier on this, waiting for the Measure to actually pass (as it probably will) and then scooping up shares might be the way to play this.

    Disclosure: no position but watching carefully.
    Aug 23, 2014. 10:05 AM | 1 Like Like |Link to Comment
  • Western Asset Mortgage Capital Turned In A Huge Total Economic Return For Q2. Any Problems? [View article]
    Only time will tell, but I stick by everything I wrote above.

    The time to buy mreits was late last year and early 2014, when they were trading at significant discounts to NAV. If you were gutsy enough to buy them when they were down and out, then, hey, more power to you. Nice trade. But the share price alone (not to speak of the dearth of bullish commentators on SA) tells me that most people during that time frame were either puking up shares or scared to get back in the water.

    With your obviously profound knowledge of mbs and the mreit biz, you can be the judge yourself of when you think they'll do an SPO. But the only "dreamer" is you if you think this is going to get up anywhere near $18 a share anytime soon.

    GLTA
    Aug 15, 2014. 02:40 PM | 1 Like Like |Link to Comment
  • Western Asset Mortgage Capital Nails The Quarter - Cautious On 18% [View article]
    3 things:

    (a) There is no way it is going to $20, regardless of the divvy. They won't allow it to go up that much (and would be stupid to do so), because they can do an SPO and monetize the premium to NAV. While the NAV will likely grow modestly, they're not running a big enough duration gap to capture that kind of a gain to book to support a $20 share price. If it breaks much over $16 I'll be a seller and look to pick up more trading shares in the next SPO.

    (b) The fact that it's edging up closer to NAV tells me that the market expects a divvy raise. These things are pricing now off of NAV--not yield--so the big move after earnings, IMHO, signals that the market feels the divvy will be solid to modestly higher. And they have every incentive to pay it all out to juice the share price.

    (c) Long-term, at least one more sizeable SPO would be good for WMC (and accretive to earnings) because their expense structure needs to be spread across more shares. They're small compared to the other mreits, and thus the sunk costs come at the expense of earnings. More shares means there is a bigger pool over which to spread those fixed costs of keeping the lights on. Also, mgmt didn't get to sell as many shares last time as they'd initially filed for, so you can bet they'll be looking to grow if the opp presents itself. Short-term, the share price will take a hit, but that's the time to buy.

    No one knows the future, but all my best guesses...
    Aug 15, 2014. 02:29 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage Capital Nails The Quarter - Cautious On 18% [View article]
    A thoughtful, cautiously optimistic take on their situation. Always good to be a bit skeptical and keep in mind the worst case. I still disagree on the divvy cut, though.

    They're easily earning the .67, and they realize that their pathway back to a premium to NAV (and the ability to issue more shares) is to maintain the aggressive divvy. Market is already pricing in a div raise to .70 or .75 cents for September.

    Friendly bet: they raise dividend to .75 and then immediately do an SPO after the ex-date.
    Aug 13, 2014. 05:40 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage Capital Turned In A Huge Total Economic Return For Q2. Any Problems? [View article]
    I don't disagree with the article or thesis--only the timing.

    While I know you were bullish before earnings, how quickly we forget that nobody wanted to touch these mreits 3-6 months ago when they were trading for serious discounts to book and the worst case hangover from a bad 2013 was baked into their prices. You could have gotten WMC for $13 and change. Now, though, once the cow is already out of the barn, you're seeing all the positive mreit articles popping up again on SA. WMC was a steal at a 15% discount to NAV. Now that it's nudging up to $15, it's no longer cheap, and I'll be selling off my trading shares if by some miracle it breaks $16 before the divvy.

    Also, if it's at or above book after ex date in late Sept, it's a cinch they will do an SPO.

    It's all in the price of these things.

    Disclosure: long WMC and MTGE (Holds on both at these current prices)
    Aug 13, 2014. 05:28 PM | 1 Like Like |Link to Comment
  • RadioShack: Buying The Stock Outright Is Still A Losing Proposition. But With Downside Protection, It Is Becoming A Viable Bet [View article]
    No problem, Muggles, and rock on!

    For the past 18 months I have been (very vocally) short the stock via puts and have owned the unsecured bonds to offset some of the cost of rolling over the short position. The bet was that the common stock would decline more rapidly than the price of the bonds.

    All that I'm saying above is that even if/when they declare Ch. 11 (as they surely will) there is now very little additional money to be squeezed out of the short position (borrowing the stock is prohibitively expensive, and the puts are pricey, whereas the calls are very cheap). The longer they take to go into BK, the more the time value of the puts decays (theta). In the very unlikely event (5-10%) that they could stave off a BK for another year by refinancing their senior debt or by exchanging their unsecured bonds for common stock, the calls could have a reasonably attractive upside.

    So I'm agreeing with the author that (a) while it is *extremely* likely (indeed, a near certainty) that they end up in bankruptcy, (b) the out of the money calls are cheap and offer an asymmetric risk/ reward if by some miracle they manage to restructure their capital structure via a strategic investment, refinancing, or exchange offer.
    Aug 10, 2014. 04:28 AM | 1 Like Like |Link to Comment
  • RadioShack: Buying The Stock Outright Is Still A Losing Proposition. But With Downside Protection, It Is Becoming A Viable Bet [View article]
    One of the more sensible things written about RSH on SA lately, and I tend to agree with the author on the relative R/RW at this stage of the game. 90% chance the common stock goes to zero, but there's a point of diminishing return in trying to squeeze out the last ounce from the short side. Given the pricing of calls versus puts, and the possibility that they can drag this out for a long time (and burn lots of theta in the process), I closed out my synthetic short last week and bought some cheap OTM calls as a lottery ticket with a small % of the profits. This thing may still have one last convulsive dead cat bounce left in it...
    Aug 9, 2014. 04:58 PM | 1 Like Like |Link to Comment
  • Double Digit Return In 30 Days With Western Asset Mortgage Capital [View article]
    Agreed in that they (and others) have hedged away relatively more of their duration gap via swaps and swaptions versus where they were positioned in 2013. And the move to become a "hybrid" will also contribute some empirical negative duration.

    But you're kidding yourself if you think there isn't still major IR sensitivity in WMC and other mreits. Not only will they lose NAV if rates rise significantly, but volatility in rates increases the cost of their IR swaps (and eats into margins). They'll do well if IR rates stay benign...and struggle if they rise. You can't escape the math--and the risks.

    Disclosure: Long WMC and MTGE
    Aug 7, 2014. 07:13 PM | Likes Like |Link to Comment
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