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laterre

laterre
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  • Puerto Rico munis plummet 6.6% in October [View news story]
    And we'll see how that rate increase--all of 4 months old--pans out, no?

    No quarrels whatsoever that the island is in a serious debt spiral, and that the GO and other discretionary bonds are facing pressures. But the bonds with strong covenants backed by inelastic revenue streams (water, sewer, certain taxation districts) have the advantage of being bankruptcy proof and their coupons will be sucked--one way or another--from the island's economy.

    Do I love PR's balance sheet or think its debt should trade inside of IBM? Of course not. But at .50-.60 on the dollar, and 10+% tax-free yields, and forced selling, it's one of the most interesting DD situations out there in terms of asymmetric risk/reward. I would buy this stuff all day long and on Sundays before I would touch the drek from RSH, CZR, etc.
    Oct 14 03:26 PM | 1 Like Like |Link to Comment
  • Puerto Rico munis plummet 6.6% in October [View news story]
    Before we start talking about bailouts of PR, how about we first let them try some less radical things to get their fiscal house in order, like, oh, say, actually collecting some of the tax revenues due to them, setting rational usage rates on sewer and highways, and reigning in retiree benefits? All of which they're preparing to do.

    They aren't Detroit. They have sovereign taxing authority that they've chosen not to use because it's been politically uncomfortable, preferring instead to fill gaps by borrowing. They see now that this option isn't any longer on the table and are cleaning up their act. Unlike Detroit, they can't legally declare Ch. 9 even if they needed to do so.

    20-50% upside in select PR munis right now, and a nice tax free yield while you wait.
    Oct 14 02:01 PM | 2 Likes Like |Link to Comment
  • Understanding The Implications Of Debt Guarantees For Caesars Entertainment [View article]
    Could you offer some specifics and projections in support of your "online poker as savior" thesis?

    For example, how does online poker help shareholders in CZR when this is precisely the growth segment that is being **spun off** into the new entity? Someone buying one share of CZR at $22 bucks and change will presumably acquire the rights to purchase a share of the new spinoff entity at $9 and change, for a net investment of $31. In exchange for this, they will own the new entity and the rump CZR (with its debts). What kinds of revenues from online poker do you think would warrant this valuation for the growth entity and leftovers? What EBITDA (and multiple) are you placing on the new entity that would lead you to think it's a good value at these prices?

    Or are you just here to advertise online poker?
    Sep 22 04:47 PM | Likes Like |Link to Comment
  • Understanding The Implications Of Debt Guarantees For Caesars Entertainment [View article]
    No doubt Leon Black is a smart guy, one of Michael Milken's protégés, no less. He and Apollo will come out smelling like roses--or at least not stinking like horse doo-doo. But if you game this out what's good for them (i.e. extracting all the valuable assets from the Holdco and leaving the rump stuck with all the debts) isn't good for the owners of CZR. The best thing written on this is the Moody's report issued on their downgrade. The game plan is crystal-clear: vacate the good assets into a new entity, and force the bondholders at OPCO to take a big haircut as part of a reorg deal. Whether that leaves CZR with any assets is a complicated question that'll probably be decided in the backrooms and bk court.

    I, too, am mystified by the price of the stock.
    Sep 20 09:35 AM | Likes Like |Link to Comment
  • Understanding The Implications Of Debt Guarantees For Caesars Entertainment [View article]
    They're refiing Propco debt (CMBS on his chart above). Still leaves Opco drowning in debt, and just another step in the shifting of valuable assets away from the rump CZR (which they'll run through a BK) and into the new entity. Equity responded appropriately.
    Sep 19 07:52 AM | Likes Like |Link to Comment
  • Understanding The Implications Of Debt Guarantees For Caesars Entertainment [View article]
    @ joeclarke9

    Because retail investors are lemmings and/or because they read somewhere in Joel Greenblatt that spin-offs/ special situations are always value-creating... In this case, they're certainly value-creating: for Apollo et. al.

    Cap Stack Guru is right. From the vantage of the capital structure and bond prices, the equity ought to be a zero within a year or two.
    Sep 13 09:59 AM | Likes Like |Link to Comment
  • A Sale Or Joint Venture Of RadioShack De Mexico Might Be In The Cards [View article]
    Ah, Manoj, so you're not averse to looking at numbers. Now we're cooking with gas.

    Latest 10-q, page 11: quarterly income from "other" (i.e. non-us stores) is 3.3M (down from 6M, or 50% decrease YOY); annualizing off the 6 month number, it's 2*11.6, or 23.2 (generously 25M), again a decline from 29M plus or minus in 2012. So the Mexico operations, if I'm reading this correctly, are generating between 14-23.2M in profits (annualized) on 310M in revenue (7.4% operating margin, which is down substantially from the 370M revenue number you're citing, assuming apples to apples).

    Goodwill, as everyone knows, is accounting bs--usually a testament to past folly. It means nothing if it can't be sold. The boiler plate language about impairments has no necessary connection to the marketable value of RSH-MX.

    Getting back to my question, what would you pay (the multiple) for a retail operation in a developing nation that was generating declining PROFITS (my mistake earlier with "revenues") of 20Mish on 310M in revenue? 5 times net profits gets you 100M, which seems high? We don't have EBITDA broken out for MX, or other better numbers to apply a multiple, but let's ballpark it at 100M. This is better than a poke in the eye, but hardly transformational. There, I've written your argument for you, better, and free of charge!

    A bigger question for your theory, though: are you sure that the terms of the 2019 indentures or the bank loan even allow "Joe" to sell off this jewel in the crown? As you know, typically the covenants on debt specify certain operations as collateral securing the debentures. I wouldn't be surprised if either the senior bank loan (almost certainly) or the unsecured bonds (less likely) are secured against RSH-MX as collateral, or at minimum the 50% RSH-MX owned by RSH when the covenants were written. In which case their ability to sell this asset is not an option absent a restructuring.

    Which gets back to the main point about the likely terms of this alleged refi, and how a distressed retailer is supposedly going to secure better terms from the market now than could a relatively healthy retailer back in 2007 or 2008? Breathing room and a larger secured bank loan--maybe. Some of the 500M in 2019 notes might be rolled up into something senior and secured (a la Penneys and the Goldman transaction). But if you run the numbers, the interest savings is going to be negligible, IMO.

    Look, I don't want to keep busting your chops, but you really need to do your homework (including looking at numbers beyond counting stores) if you want to make a credible argument. The bottom line is that none of this addresses the core issue that they have too many stores, too much debt, and a low margin product. Here's the solution: in a pre-pack ch. 11, you work out a deal with the 2019 bondholders (probably the fulcrum here, at least until the big holiday draw on the bankloan) to equitize the debt and give them a big share of the post-reorg company. You use the ch.11 process to break 40% of the leases on the least profitable, most redundant and underperforming stores. Once you've right-sized the company, you keep forking out $ to Serena Williams or whomever for more of those commercials where she vaporizes the headphones. (I see that commercial and all I can think is cash burn...). Close your eyes, cross your fingers, and pray they come.

    This may prove to be a good trade, but it's super risky as an investment.

    Disclosure: short the equity against the 2019 bonds.
    Aug 26 05:49 PM | 1 Like Like |Link to Comment
  • A Sale Or Joint Venture Of RadioShack De Mexico Might Be In The Cards [View article]
    You are the man, Manoj! I give you mad props in that you called the short squeeze (allowing me to roll out more long dated Puts and make some $ from the vol). And you have some great theories about how they might free up capital.

    But again, really, let's get back to the real numbers. How do you value the Mexico operation? I notice you don't even bother, despite the fact that they break out revenue (and you can impute margins) from the ratio of revenue to stores. What multiple would you assign to the Mexican revenues (it's 25M annualized, since you didn't take the trouble to look it up, and declining YOY). What multiple would you use to value it? If it was worth $50M or whatever in 2008, what leads you to conclude it's worth dramatically more now?

    And on the debt refi "rumor." Of course they'd love to extend those bonds out at a lower rate. But look at the numbers. Their main interest expense now that the converts were redeemed is the 2019 6.75% unsecured notes. Do you think anyone is going to loan them money unsecured at less than 6.75%? The market says the going rate to loan them money (YTW on the outstanding bonds) is 13%. And while expanding the senior secured credit facility (which they supposedly don;t need) might get them a couple points lower, it's not going to be radically lower than the current LIBOR plus rate. Look at what Goldman charged JCP to get a sense of what senior bank debt is costing struggling retailers...

    In sum, lots of glorious theories; no numbers to back up...
    Aug 26 04:28 PM | Likes Like |Link to Comment
  • Will Joe Magnacca Prove To Be The Archie Norman Of RadioShack? [View article]
    Such enthusiasm, Manoj! You almost make me want to BUY, BUY, Buy! But now back to reality...

    Setting aside the numerous logical fallacies and false inferences involved in comparing two CEOs of diff companies, business models, and capital structures, here's the sad, empirical reality. RSH is undercapitalized, overloaded with debt, and in a brutally competitive, low-margin industry going head to head with numerous better capitalized retailers selling exactly the same product.

    You say that it might double on good news. As a short term trade, and given the high short interest, I can actually see that happening. But I can just as easily see it losing 80% overnight when they file a prepack Ch. 11, which is the rational thing for them to do to get out of their unproductive leases and equitize the 500M in debt. So you're flipping a coin, essentially: heads you <maybe> squeeze out a 100% pop, tails you lose 80%. You can find a better risk reward in Vegas.

    Rather than telling just-so stories about their intrepid CEO, why don't you dig into their capital structure, explain how they're going to pay for their inventory this fall/winter if their vendors get skittish, and explain why their unsecured bonds are pricing in a bk and a 30% haircut? That's what real buy-side analysts are supposed to do.
    Aug 10 08:34 AM | Likes Like |Link to Comment
  • This ETN Focuses On Business Development Companies And Offers A 13% Yield [View article]
    Let me throw out two propositions:

    a) Interest rates are going to rise considerably in the near future with tapering, the end of QE, etc.

    b) QE and artificially low interest rates have driven capital to chase yield in ever riskier sectors.

    If you think there is validity to either one or both of these two propositions, the absolute LAST place you want to be is in BDCs. The marginal small and middle-market borrowers over which BDCs have fought tooth-and-nail the past couple of years are some of the worst credits one can possibly imagine, and as rates rise, junkier credit is going to get monkey-hammered as bad or worse than TSY.

    Would you want to invest in "ABC Widgets," unrated by Moody's, and unqualified for a bank loan, with a 1.2 coverage ratio, at Libor + 3%, or a mezzanine loan to "Fly by Night Shipping of Athens," with a coverage of .7, at 9.5%, or own a 10yr Treasury at 4.5%? Imagine what a 150 bps re-rack is going to do to these bread and butter loans of in the BDCs?

    The only thing worse than piling into these things at the top of a credit bubble is doing so with 2* leverage...

    My 2 cents.

    LT
    Aug 8 06:17 PM | 1 Like Like |Link to Comment
  • RadioShack Is Not Worth The Gamble [View article]
    Terrific, sensible analysis. On its face, the #s don't look horrible, but if you model out the cash flows, this holiday season is make or break for them. Hats off to the folks at Alix, as they managed to convert a big chunk of receivables and inventory into cash this past quarter. But they still need to rebuild inventory for the fall/winter season. That's going to consume a big chunk of that cash, and possibly require a drawdown on the credit facility. If you were a supplier, particularly with high-price/ low-margin items like cell phones, would you take the risk of advancing them inventory on any terms other than cash when it's clear that you'd end up an unsecured creditor (below the bank loan and the senior unsecured bondholders) if they decide to pack it in with a Ch. 11?

    It's not a great short any longer either, but the r/rw on the long equity is mediocre at best.
    Aug 4 01:53 PM | Likes Like |Link to Comment
  • S&P warns of RadioShack default [View news story]
    Maybe the Shack will survive. I'm no Nostradamus. Hey, for sentimental reasons I'm pulling for them. But all the likely roads to survival lead through the extinction of the equity.

    Being agnostic about the outcome, and looking inductively at the numbers, here's what I see:

    1) The subordinated bonds are trading at a 30% haircut. Why would anyone think they know better than the smart money, which is higher than them on the capital structure and is pricing the equity at a zero. The resolution to their debt problem--viz. equitizing the debt through some kind of pre-pack 11--is the rational equilibrium solution for all the stakeholders.

    2) Even as a pure trade, the risk/ reward in the long position is lousy. The upside from here is maybe, if you trade it right on a bump or a short-squeeze, 100%? The downside--if they negotiate a prepack bk after-hours--is an 80% loss. Is that r/rw worth rolling the dice?

    Whatever--takes two to make a market.
    Aug 2 08:49 PM | Likes Like |Link to Comment
  • S&P warns of RadioShack default [View news story]
    Yes, you're missing something. They've raised cash by drastically selling down their inventory (look at the inventory draw-down from Q to Q) in order to juice cash for Q-end and cushion the debt paydown yesterday. But they haven't replaced that inventory yet, which they'll need to do for the fall/winter season. After paying the $200 M due, they have +/- 600M in liquidity (230M cash plus 380M on revolver). This is against 400M in current liabilities and purchase commitments. That's a coverage ratio of 1.3, but that doesn't solve their inventory problem, the need for cash to implement the new store concepts, or the fact that the market is saying the cost on their unsecured debt is now prohibitive (>14%). Unless they get big concession from their suppliers to give them inventory on credit, or they manage to refinance the revolver, they're going to run out of cash. Whether this is by end of '13, early '14, or later depends only on the rate of cash burn. It's a question or when, not if, IMHO.
    Aug 2 04:24 PM | Likes Like |Link to Comment
  • RadioShack's College Bookstore Deal Will Send Shares Higher [View article]
    As presented by the inimitable zerohedge, with a full summary of the Debtwire report...

    http://bit.ly/15k1xS8

    2019 seniors (who'll end up owning the co in a bk) currently trading in the high 60s, implying a >30% haircut. I'll leave the intrepid knife-catchers to do the math and figure out what that makes the equity worth (hint: rhymes with "hero").
    Jul 11 02:57 PM | Likes Like |Link to Comment
  • RadioShack's College Bookstore Deal Will Send Shares Higher [View article]
    google "debtwire" and "radioshack."

    STP. Check.
    GMXR. Check.
    OSH. Check.
    XIDE. Check.


    I love capital structure arbitrage!
    Jul 11 02:14 PM | Likes Like |Link to Comment
COMMENTS STATS
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