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laterre

laterre
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  • 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
  • American Capital Agency And Mortage REITs Post-Memorial Day Sale [View article]
    Hey CK, fellow posters, and SA “Editors”

    Just wanted to offer one last post to say goodbye to everybody on SA. It’s been a fun few years, and hope everyone navigates this latest “mreit mania.”

    I won’t bury the lead: one of my recent posts has been flagged as offensive and deleted by the moderators on SA. As far as I can see, the most offensive parts are me using the term “sheeple” and calling AGNC mgmt “greedy” for doing so many SPOs. I may have thrown in a WT-heck for good measure, but it was abbreviated for younger viewers. Admitttedly I may have crossed some kind of line, but I note that Southern Gent—another extraordinarily knowledgeable and conscientious poster on SA—recently had two of his comments deleted for “violations” that absolutely stretch the imagination.

    Hey, I know I can sometimes be abrasive, particular when people are making dumb arguments. But I’ve also (and maybe I’m flattering myself here) contributed a great deal of time and effort to posting comments on SA that share knowledge with others; called out obvious BS and pumping; and generally tried to respond to and inform those less knowledgeable to prevent them from losing money or being taken advantage of. I’ve done so—I’m proud to say—without taking a *nickel* from SA, even though the volume (and arguably quality) of my posts rivals some of the serial contributors.

    While I wholeheartedly support efforts to maintain civility in the blogosphere--and have zero personal tolerance for racial slurs, ad hominen attacks, or other forms of bias—this recent crackdown by SA’s moderators strikes me as totally misconceived. If SA “Editors” spent half as much time fact-checking contributions, exercising quality control, and deleting obvious pumping, SA would indeed be a better place.

    Anyway, it’s been fun. Be safe out there!

    LT
    Jun 15 06:19 PM | 2 Likes Like |Link to Comment
  • RadioShack's College Bookstore Deal Will Send Shares Higher [View article]
    Hey Chipmunk,

    First off, I'm deeply suspicious of "valuations" based on wishful thinking, untested theories, or anecdotal evidence. Bond markets capture all the available information without the rose colored glasses of equity speculators. Bond investors ask the hard question: if I loan this company money, am I going to be paid back, and if not, how much of a haircut am I going to take? That's why bond weakness is the most reliable predictor of liquidity issues, and bond prices always lead while equities follow.

    But let's play this game anyway. I regularly stop by or observe several of their local stores--one in a major urban mall, another a stand alone unit in a strip center. Two years ago in these stores I saw (a) more customers and (b) people buying high margin items like DVD players, tvs, etc.

    Now when I visit, I see (a) no customers and lounging employees; (b) the exact same pre-paid and low income oriented pay-as-you go cell phones, and post-paid subscription phones that are offered by a dozen other stores or kiosks in the mall, including stores by all the VERY SAME carriers whose products RS carries; (c) a pseudo hip-hop, "celebrity" endorsed line of cheap, Chinese-made headphones and karioke microphones that grandma might think are cool to buy for her 12 year old grandson. Supposedly I will soon see a line of Anduino based hobbyist products for the tech-savvy (edgy, true) but that are all readily available online for less than retail.

    What am I missing?
    Jun 13 07:50 AM | 1 Like Like |Link to Comment
  • The Mortgage REIT Bloodbath: How To Protect Your Portfolio [View article]
    Doubt even the worst will go bk.

    Put options get exercised on bk companies all the time. Like CK says, if you don't want to exercise it and be short a bk company, you can just sell the ITM put option rather than exercising it (so long as it's a liquid options market). Or you can, as I've done many times for illiquid options, exercise the option, go short the bk company, and cover immediately. Stocks for bk companies often change tickers and are delisted to the pink sheets, but this rarely happens immediately.

    Prob not a realistic possibility, even for the dogs of the sector.
    Jun 13 07:34 AM | 1 Like Like |Link to Comment
  • The Mortgage REIT Bloodbath: How To Protect Your Portfolio [View article]
    Yep, PDI is heavily invested in mbs (Ivascyn's specialty), but unlike the mreits, the leverage is modest (only around 50%); he's got some nice hedges in place against rising rates; and he uses the same kind of "barbell" strategy as Gundlach, investing both in non-agency mbs with negative empirical duration, as well as strips of agency CMOs, which tend to move in inverse directions to soften the impact on NAV. It's gone from a modest premium to a 10% discount to book in a matter of weeks.

    Something's afoot in the world of mbs-related spread products... The losses to the share price of CEFs like PDI or DBL bear no resemblance to their underlying NAVs.
    Jun 12 09:02 PM | Likes Like |Link to Comment
  • The Mortgage REIT Bloodbath: How To Protect Your Portfolio [View article]
    Dividends #1,

    Sorry to drag an earlier thread from another article into CK's discussion, but to answer your question here...

    In response to your earlier question about the danger of BK, I ventured that a reasonable "WORST CASE" for AGNC would be a fall to the high teens, and a draconian divvy cut to 10% of that new share price/ NAV. In $ terms, since that seems to be your main concern, that would imply a reduction of the divvy to +/- $1.75 or $2 per share. To be clear to others reading this: I am NOT saying that this will happen, only that in response to your question about bankruptcy fears, if you are risk-averse (as you ought to be) that is a very reasonable WORST CASE scenario to model for AGNC.

    But parenthetically (if I may) and then I've got to leave you to mull your own investment decisions. I really think that you are fixating too much on the $ amount of the divvy with respect to you and your wife's retirement income, and not enough about the true issue of loss of capital. It's nice and all to say that you're only concerned about the income stream, and that you'll sit out a 50% whack to your investment so long as that income stream is sustainable. But this has always struck me as a backward and short-sighted way to think about investment risk. Even for retirees, total return (or capital losses) have got to matter at some level. What if you had to cash out? And the degree to which you're fixating on this investment in AGNC leads me to conclude that this may be too much vol for you. You'll pardon me if I've offended, but that's all I can really say to be helpful...
    Jun 12 11:51 AM | 1 Like Like |Link to Comment
  • The Mortgage REIT Bloodbath: How To Protect Your Portfolio [View article]
    Yes, saw that with DBL... And PDI has fallen to what looks like a ridiculous 10% discount to NAV. I'm full up on the latter, but may nibble a little on DBL.
    Jun 12 11:39 AM | Likes Like |Link to Comment
  • The Mortgage REIT Bloodbath: How To Protect Your Portfolio [View article]
    Yes, absolutely CK, he knows that's the issue now for mbs. But as of last week, his rap about mreits--which I don't think he follows very closely--was still that dividends were coming down based on spread compression, and thus that share prices would necessarily drop further. He gave the example of selling NLY at 13.5 now and potentially buying it back later this year in the 12 range.

    Again, just trying to clarify what he was saying last week on his cc and on CNBC--not affirming his position. And he's probably not going to be talking up mreits even under the best of circumstances because they're his "competition," to some extent.
    Jun 12 07:17 AM | Likes Like |Link to Comment
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