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  • 1347 Property Insurance: Strong Long-Term Prospects [View article]
    Nice analysis. I don't know the biz they're in, but it's easy to see that there's a pretty decent margin of safety. But the most interesting thing to me are the insider stock options--both for the execs and the mother company that spun them off. Execs and the parent company stand to benefit big time if there's a strategic transaction. Also, interestingly, the CEO's options with a strike of $8--which were set to expire at the end of May--were just extended for a single month...

    Scratch the above...more options at a $10 strike, and a further extension for Raucy's:
    Jun 3, 2015. 07:55 PM | 2 Likes Like |Link to Comment
  • Walter Energy - The Last Stand [View article]
    Speaking as a bondholder, I'm *delighted* that they've decided to make one last coupon payment before turning out the lights. Really wasn't expecting it, and actually won't believe it until I see it.

    They have no choice, though, as there's no rational reason why bondholders should make concessions outside of BK; and even if some portion of the debtholders were willing to wait, after the 30 day grace period for non-payment anyone who wants to front the legal fees can file suit and force them into BK anyway.

    Unsecured notes are a nuisance claim at this point in BK, as the senior secured lenders will end up owning 95% of the Newco, maybe unsecured bondholders will get a token % of the post-reorg entity, and, sadly, equity holders will be wiped out.
    Jun 3, 2015. 07:16 AM | 1 Like Like |Link to Comment
  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    "Everyone would only think wonderful things about them if there weren't warts, and if there weren't warts you wouldn't be able to buy the preferred's for less than $4."

    Haha, and fair enough! I'm going to pass on this one even at $3 and change, but GLTA.

    Thanks again, Darren, for the quality work you do on SA.
    Jun 1, 2015. 07:18 AM | 2 Likes Like |Link to Comment
  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    Hey Darren,

    Nice job--and I appreciate the spirit in which this is offered. A prime example of what ought to be happening on SA. In the spirit of generating critical discussion, and with all due respect, here are a couple of thoughts.

    A) First, in one sense I think the discounts you apply are sensible, and maybe even more conservative than the haircuts I'd typically apply if looking at a distressed situation. Nothing much to quibble with in terms of your numbers.

    But stepping back (and you allude to this in pointing out the divergence with an EBITDA-based valuation), I really worry about the "value" of oil and gas assets if there's no economical way to get them out of the ground. Just wondering: do these third-party estimates take the cost of recovery into account?

    Hypothetically, imagine that there is potentially $100M worth of gold in a mine in Antarctica. No one disputes that it's real gold or its market value. But the extreme costs of mining and recovery are prohibitive, meaning that whether one is thinking about this mine as an owner-operator (i.e. the NewCo of Mill after the impending Ch. 11 reorg) or as a potential buyer of assets in a bust-up fire sale, the value someone would pay for these assets is still zero.

    Ok, so perhaps this is a dis-analogy, but there are some clues to suggest that maybe this isn't so far removed from the Mill situation. First, what's the rationale for these Alaska drilling credits? Sincere question; I don't know! Aren't these premised on the fact that drilling in Alaska (as one might suspect) can be prohibitive unless the state kicks in something to make it economical for operators? These Alaska subsidies (and the hedges) seem to be keeping the lights on for them.

    Second, in addition to drilling lots of dry wells, their IRR even on the good wells hasn't exactly been inspiring. I don't think it's too much of an exaggeration to say that they've continually bled cash on their drilling operations. This implies one of two things. Either (a) Mill are lousy operators, or (b) the economics of drilling their properties in Alaska suck, and would suck for potential acquirers as well. With respect to (a), the argument I've heard from bulls since I started following this is: "well, now they're *really* serious and are going to *really* start trying to make money." But this begs the question of whether, if it was possible to make money with their assets, why weren't they doing so previously? I hate this fallacy in investing, and a fallacy is exactly what it is, and yet you hear it all the time. The alternative (b) is that actually Mill are pretty good operators, and if they can't make these assets pay, then why would we think that some larger operator would step in and pay good $ for the privilege of flushing more money down the toilet.

    B) We know much less about the valuations of their assets and operations than do their lenders. I take this for granted. If you agree with this premise, then doesn't it trouble you that senior secured lenders who are way *above* you on the credit stack (and presumably easily in the money) are falling all over themselves trying to get their cash back out of this investment? If they're spooked and trying to grab cash, what does this say about their own reckoning of the safety of unsecured debt below them?

    C) Let's assume you're absolutely right on all your valuations, and as things stand right now, the preferreds are well in the money in a bust-up fire sale. But if there's value there to be had, what makes you think that something in the capital structure won't change in the next 12-18 months to the detriment of the preferred holders, who have little or nothing in the way of covenants or security? They've already announced (more or less) that Global Hunter is going to be doing a restructuring. It goes without saying that any new $ coming into this company is going to come in secured and senior to the prefs. New secured liens mean that pref holders will be pushed down and out, so even if you're right on your valuations, they may not hold in a year when $100M in new senior capital waltzs in the door and get in line in front of you.

    To be clear: I'm not saying this is a bad investment, as the upside here is enormous if you're right. The risk/reward is nicely asymmetric, and maybe this is worth a punt after all But there's very little in the way of a margin of safety, and no "edge" that I can discern.

    My 2 cents, in the way of stimulating debate, and thanks again for sharing your excellent and thoughtful analysis.


    PS: after Friday's action, DR's options on that other stock we talked about are nearly ITM...
    May 31, 2015. 03:29 PM | 2 Likes Like |Link to Comment
  • All Is Not Lost For ARMOUR Residential [View article]
    "I believe" (to quote the most overused expression in this article) that pigs can fly and money grows on bongo trees. What evidence does the author have for any of these projections about how rate moves, costs of funds, or CPRs are going to suddenly benefit ARR? If they could have done better before, wouldn't they have done so?

    This is bar-none the worst managed mreit in the space. They make the guys at CIM look smart. They struggled even during the good years. When quality players like AGNC or MTGE are now trading at +/- 20% discounts to NAV, ARR's discount to NAV makes perfect sense.

    Only way this thing moves if if Goldstein and Bulldog come along and green-mail them into buying back shares, which they ought to be doing anyway, as there's no way they can earn greater than 25% IRR with a current yield spread of 1.2%.
    May 31, 2015. 02:47 PM | 2 Likes Like |Link to Comment
  • The King Of Bonds Is Shorting Bonds [View instapost]
    Actually, he got his hat handed to him (so far), because he got caught selling vol in stupidly irresponsible amounts...

    Gross is a gambler, and has lost his touch...
    May 25, 2015. 08:46 AM | Likes Like |Link to Comment
  • Spreads And Durations And Swaps... Oh, My! Digging Deeper Into Western Asset Mortgage [View article]
    Agree and look forward to the NLY article. NLY's mgmt profited horribly at shareholder's expense. Compensation packages for Welli and the former brains of the operation were ridiculous. And don't get me started on the B team at CIM. How much shareholder value did those nudniks vaporize...
    May 11, 2015. 04:06 PM | Likes Like |Link to Comment
  • Spreads And Durations And Swaps... Oh, My! Digging Deeper Into Western Asset Mortgage [View article]
    Agree in principle that mreit mgmts have on the whole behaved scandalously (and not just those two guys in the strip mall in Veiro Beach who stunk even when the going was good...)--selling shares at the exact top of the market. But I'm not sure an actual takeover by an activist is either desirable or feasible. This isn't like running a widget factory, and you don't want some loudmouth Nelson Peltz type trying to make intricate calculations on hedging, swap books, and repo. The curve sucks for anyone running the portfolio. And for most of these guys, the break up fees on the mgmt agreements are medieval--just too costly to try to strip the assets away from the mgrs.

    I'm glad that at least WMC's mgmt seems to have handled the market nicely so far. And the good thing is that this WMC vehicle is pretty marginal to Western Assets main business, so the mgmt seems less conflicted than most. For most of them, this isn't their day job.
    May 11, 2015. 08:56 AM | Likes Like |Link to Comment
  • 18%+ Dividend Western Asset Mortgage Capital Is Benefiting From The Grexit Fear - Buy [View article]
    "WMC, which was already heavily hedged, increased the total notional value of its hedges from $5.605B as of December 31, 2014, (excluding forward starting swaps) to $8.255B as of March 31, 2015 (excluding forward starting swaps)."

    These don't seem to match the numbers provided in the swap book charts immediately above them. May we assume that the difference is that your numbers (but not the charts) exclude the forward starting swaps?

    But more importantly, shouldn't one regard "Fixed Pay Rate" (i.e. receive floating rates, I assume, which are intended as hedges to rising rates)" and "Variable Pay Rate" (i.e. receive fixed, I assume, which are bets that rates will stay below the reference rate) as off-setting positions rather than as cumulative amounts? The point is that they're simultaneously long and short different parts of the curve, no?
    May 7, 2015. 04:09 PM | Likes Like |Link to Comment
  • 18%+ Dividend Western Asset Mortgage Capital Is Benefiting From The Grexit Fear - Buy [View article]
    Not following your numbers vs. their charts. And is NET or gross the appropriate way to reckon up how fixed pay/ variable receive and variable pay/ fixed receive books of swaps interact with each other...
    May 7, 2015. 03:39 PM | 1 Like Like |Link to Comment
  • Western Asset Mortgage: Best-Of-Breed [View article]
    Great company, NIMs are expanding, still a major holding for me, but it's rich at these prices.

    The better trade would be to start gradually moving into MTGE and AGNC, which have opened up substantial discounts to NAV--more than 20% and well on the way to 25% if this keeps up. The price discrepancy can't be justified over the long haul, and don't forget that WMC is taking more risks (credit and leverage) to earn those juicy dividend yields.
    May 7, 2015. 08:16 AM | 3 Likes Like |Link to Comment
  • Fishing In The Oil Patch [View instapost]
    Sorry, my friend. But the good news is, you've got at least one new bidder in the market today.
    May 6, 2015. 11:15 AM | 1 Like Like |Link to Comment
  • American Capital Agency: The Sky Is Not Falling [View article]
    Echoing user27...

    Nice qtr by WMC, but I think AGNC is actually worth a 2nd look at these current prices. They can earn 20% ROE just by buying back their own shares, and they should begin doing so aggressively.

    Buy when mgmt is buying, and sell when they're selling--like all those ridiculous top of the market SPOs AGNC did in 2012-2013.
    May 6, 2015. 09:46 AM | 2 Likes Like |Link to Comment
  • Spreads And Durations And Swaps... Oh, My! Digging Deeper Into Western Asset Mortgage [View article]
    Decent Q, with the fundamentals looking bright for the near term. Still, it's rich compared to the rest of the field...

    With the drubbing that AGNC has gotten lately, and the sheer disgust/ capitulation that's been reflected on SA, I'm thinking about nibbling a little on AGNC. They're close to opening up a 25% discount to NAV. At these prices, the best allocation of capital by mgmt is to begin buying back shares with both fists.
    May 6, 2015. 09:39 AM | Likes Like |Link to Comment
  • Western Asset Mortgage Capital Corporation Announces First Quarter 2015 Results [View article]
    Nicely done--about as well as could be expected in a volatile qtr. And NIM *growing* rather than shrinking as they move deeper into credit!
    May 6, 2015. 09:34 AM | Likes Like |Link to Comment