dr.malone

FT: Blackstone skips payment on $274m hotel loan World’s biggest alternative asset manager pledges to work with lenders on ‘best possible outcome’ Blackstone has skipped a payment on a $274m hotel loan, joining the ranks of leading real estate investors that have fallen behind on debt during the coronavirus crisis. The debt is secured on four hotels in Chicago, Philadelphia, Boston and San Francisco, which the US private equity group acquired in 2016 from Club Quarters, a membership-based hotel network that continues to operate the properties. Blackstone made contact with the loan administrator in April to request “various modifications and forebearances”, according to a report distributed to credit market investors, which added that the properties were closed, and the loan was delinquent. On Friday, Blackstone characterised the hotel deal as “a very small investment that had been written down prior to Covid-19 as a result of unique operational challenges”. It added: “We will continue to work with our lenders and the hotel management company to create the best possible outcome under the circumstances for all parties, including the employees.” Some of the debt is trading at values that suggest the investors do not expect to make a full recovery. For example, the lowest-rated portion of the loan secured on the Blackstone hotels changes hands for 76 cents on the dollar, down from 100 cents at the start of March. The US travel industry has been among the hardest hit by the coronavirus pandemic. Hotels emptied out as state and local governments tried to curtail the spread of the virus. Nearly a quarter of hotel loans packaged into commercial mortgage-backed securities, or CMBS, were past due in June, according to data provider Trepp. Other badly affected sectors include healthcare and retail, with painful consequences for real estate investors that include some of America’s most prominent asset managers. Colony Capital, the real estate investment group founded by Tom Barrack, said in May that its portfolio companies had defaulted on $3.2bn of debt secured by a portfolio of properties that includes nursing homes and hotels. Brookfield, the Canadian investment group that ranks among the biggest owners of American shopping malls, has also skipped payments on its mortgages and asked lenders for forbearance. Blackstone’s missed loan payment is a setback for the world’s biggest alternative asset manager, which has pointed to the diversity of its portfolio and its focus on sectors that have been relatively resilient during the coronavirus shutdown. “Approximately 80 per cent of the [real estate] portfolio is comprised of logistics, high-quality office and residential assets,” Jon Gray, Blackstone’s chief operating officer, said in April. He added that logistics properties, which are a vital link in the growing businesses of online retailers such as Amazon, were “the most dominant theme”.

Hi Norm, Does the link work for the YYX Toronto Value event? When i click on it, it says connection is not private, might be a spam etc. Also, under the April 16 FFH Day, you have the date as April 11. The program for the Ben Graham event sounds fantastic! Thanks

Brolgaboy!!!!!!!!!!!!!!

i just read the WPG one. pretty classic! i usually read the JPM transcript to hear Dimon so i get an overview of the economy etc. i'll also read the apollo transcript when leon black does it to get an overview of what private equity is seeing, etc. i love the loews conf call to hear jimmy tisch talk. his comments Monday on DO are very interesting. that could be a multi-bagger from here. and then of course, dr. malone used to do a liberty conf call here and there but i don't think hes done one in a long long time... I'll also read the transcripts of third point re and greenlight re because dan loeb and david einhorn are on those calls.

Anyone see their latest results and the annual letter by the CEO? I think the situation is getting much clearer for the company as they continue to de-lever and we finally saw meaningful buybacks YTD. It seems they are patiently sitting on the bid for the buyback and most likely continuing to buy around the 2.15-2.20 level. It's hard to see how this stock could fail to compound annually at 10-15% for the next 3-5 years... but then again, i've been wrong for the past year on this name...

My base case at 2025 is 70 million Editda annually based on existing PPA. 10 times gives you EV if $700 less preferred of 170 leaving common with 530 mil. Say $500 = $4.20 per share. This is a 95 percent return in 7 years. Say 10 percent annualized. Now, over the next 7 years do you think mgt will not do anything positive and All PPAS expiring will not be renewed? Not even for nominal amounts? Also this power markets continue to be at cyclical lows? In this base case remember after 2023 there will be no debt to amortize. Remaining debt will be due 2025 (95 mil). They will also have $160 million in cash with the 2036 notes of $160. Why pay it off at that point? I would buy back stock. So imagine buying back 75 percent of the float if the stock price is the same! From 2025 to 2036 you get $50 FCF (assuming no value added by mgt) on 25 million shares. $2 per share in dividend.

Japanese insurer Mitsui Sumitomo Insurance Co. has struck a deal to buy Singapore-based property and casualty insurer First Capital from Canada's Fairfax Financial Holdings Ltd. for $1.6 billion, according to people familiar with the transaction. Fairfax, a Toronto-based holding company founded in 1985 by one of Canada's most prominent investors, Prem Watsa, will get a 25% stake in First Capital's insurance portfolio. First Capital's CEO, Ramaswamy Athappan, will remain in his role, while continuing to serve as chairman of Fairfax's Asia operations. The deal is part of a global partnership between the two firms that will give Fairfax access to Japan's insurance market, while allowing Mitsui greater access to the United States, said the people. Japanese insurance firms have been branching out into higher-return investments elsewhere because of Japan's low interest rates, which have hurt returns. Fairfax has also been trying for a foothold in Japanese markets for several years, and the partnership gives it a chance to take part in underwritings from one of Japan's largest nonlife insurers, according to the people close to the deal. Fairfax paid more than $4 billion in July to acquire Allied World Assurance Co., marking the largest expansion into the U.S. in Fairfax's 30-year history. In October, it agreed to buy some of American International Group Inc.'s Latin American and European property and casualty insurance operations.

The financial whizzes cocooned in the serene offices of the Sequoia Fund atop one of New York’s iconic office buildings seem far removed from the noise of the city far below. But the 47-year-old mutual fund known as much for its ties to billionaire Warren Buffett as for its uncanny stock picks that created massive wealth for clients — retirement funds, pension funds, university endowments and regular-Joe investors — has had to descend from its lofty perch in the past two years and rescue its good name. A big miscalculation on one stock, Valeant Pharmaceuticals International, has cost the Sequoia Fund billions of dollars and compromised its reputation for market-beating performance earned over decades. The rebuilding process comes at a time when investors are leaving stock-picking funds such as Sequoia for index-based mutual funds, which track a fixed basket of stocks. Value stocks such as the ones Sequoia seeks out are finding themselves less loved by a bull market that is on the hunt for the next Apple or Facebook. Sequoia grew to maturity under the glow of Buffett, the folk-hero money mind whose stewardship of Berkshire Hathaway prompted a national following based on the virtues of common-sense investing and avoiding mistakes. The Sequoia Fund has long stood near the top of the Wall Street pyramid. It enjoyed a reputation for sobriety, transparency and a resistance to volatility, which drew blue-chip clients such as The Washington Post. The newspaper for years has listed the Sequoia Fund among its 401(k) options. (This reporter has been a modest Sequoia investor for 20 years.) The Valeant stumble has reverberated. “It was quite painful, but most clients made money on Valeant,” said chief executive David Poppe, sitting in a conference room overlooking the regal Plaza Hotel, with leafy Central Park and the Bronx in the distance. [Your mutual fund manager just doesn’t matter much anymore] Sequoia bet — and bet big — on Valeant. It stuck with the shares even as Valeant was battered by Wall Street and by relentless media coverage of its strategy of using debt to buy drug companies, then laying off employees, doing away with research and jacking up prices — which resulted in embarrassing congressional hearings and federal investigations. Sequoia’s returns eventually tumbled. Its assets under management have been halved from $8 billion pre-scandal to $4.2 billion, with a big chunk attributable to a nose-dive in Valeant stock. It fell from $257 two years ago to less than $15 now, a loss of more than 90 percent. Looking up from the wreckage, Berkshire Hathaway Vice Chairman Charlie Munger called Valeant “a sewer” and its business practices “deeply immoral.” Buffett called it a “Wall Street scheme” with an “enormously flawed” business model. The Sequoia Fund’s Morningstar rating, a respected metric in the mutual-fund industry, dropped from gold to bronze. Longtime fund co-manager Bob Goldfarb, known for contrarian views that unearthed stock gems, retired. Through a spokesman, Goldfarb declined to comment for this article. Sequoia once enjoyed such prestige that it closed itself to new investors. Now, after the loss of some major investors because of Valeant, Sequoia has installed a more rigorous approach to picking stocks and selling them. The company’s annual Investor Day meetings are now more tension-filled affairs with pointed questions. “It’s fun to play on a winning team,” Poppe said. “Suddenly we look like a losing team.” By the mid-1970s, Ruane, Cunniff found its footing by discovering unnoticed public companies, including The Washington Post Co. Here, Katharine Graham, the Post Co. board chair, is joined by Thornton F. Bradshaw, left, former chair of RCA, and Warren Buffett, chair of Berkshire Hathaway, in 1987. (Mario Cabrera/AP) Value investing To understand how and why Sequoia bet the farm on Valeant, you need to understand value investing. The concept is simple: Find the few underappreciated companies that everyone else has ignored. When you find one that is undervalued, buy it. Buy lots of it. Sequoia director John B. Harris put it this way: “The crux of value investing is this notion that the vast majority of people, the investing public at large, tends to get things mostly right but not always right. And sometimes very wrong.” “If you do very diligent research and make analyzing businesses your life’s work rather than just a hobby,” he said, “every so often, you will be able to come to a pretty firm conviction about what the future holds for an individual business. Every once in a while, you will be able to pay a price that’s far below what it’s truly worth.” Go back to 1969. That’s the year William J. Ruane and Rick Cunniff, friends and graduates of the Harvard Business School, founded a stock-picking firm that became known as Ruane, Cunniff & Goldfarb. A year later, the founding partners created their flagship mutual fund, Sequoia. Ruane, Cunniff has always had two parts: the Sequoia Fund and, separately, individual clients that include families, individuals, pensions, foundations and endowments. The portfolios of the Sequoia Fund and the private clients are virtually the same. “We think of it as one business, one client, one portfolio,” Poppe said. Ruane and Buffett’s lifelong friendship began at an investment seminar led by longtime Buffett mentor Benjamin Graham, a professor at Columbia University who was called “the father of value investing.” Buffett, Ruane, Cunniff and a cadre of other Graham disciples ran with the value investing ethos, building names and fortunes for themselves. Buffett and Munger are billionaires. The first years were difficult, but by the mid-1970s, Ruane, Cunniff found its footing by discovering unnoticed public companies, including The Washington Post Co. (which had then recently gone public), Interpublic Group and Ogilvy & Mather. In the 1980s, the firm had holdings in Kraft, Sara Lee and Capital Cities. The 1990s produced stakes in Fifth Third Bank, Progressive Insurance, Harley-Davidson and Johnson & Johnson, all of which were sold at healthy profits. Buffett had such faith in Ruane that he would recommend the firm to others. As recently as 2016, Buffett said at Berkshire Hathaway’s annual meeting that he considered himself the Sequoia Fund’s “father.” “I’m the father of Sequoia Fund in that when I was closing up my [buffett] partnership at the end of 1969, I was giving back a lot of money to partners,” Buffett said. “These people trusted me, and they wanted to know what they should do with their money.” “Bill, who would not otherwise have done so, said, ‘I’ll set up a fund,’ ” Buffett recalled. Ruane, Cunniff returned the love. By the early 1990s, Buffett’s Berkshire Hathaway became one of the Sequoia Fund’s core holdings. It has stayed that way since, with its share price rising from $70 to more than $200,000. Berkshire Hathaway constitutes 11 percent of Sequoia’s assets. “Bill ran Sequoia until roughly 2005 when he died,” Buffett said in 2016. “He did a fantastic job, and even now, if you take the record from the inception to now with the troubles they’ve had recently, I don’t know a mutual fund in the United States with a better record. You won’t find many records that go for 30 or 40 years that are better than the S&P.” Part of the key at Ruane, Cunniff was to concentrate on a few stocks, at first maybe eight or 10. Even today, the firm’s portfolio is concentrated, though now the number is closer to 25. That’s very few investments for an $11 billion-plus portfolio. Sequoia’s investments include very un-value-like names such as Amazon.com and Google parent Alphabet. Both are widely owned stocks that are heavily scrutinized. (Amazon chief Jeffrey P. Bezos owns The Post.) Value investors such as Sequoia generally seek ignored, under-the-radar companies that have been misjudged and have room to grow. “Bill had a saying, ‘Your six best ideas in life will do better than all your other ones,’ ” Poppe said. “That ethos has been consistent for the whole 47 years of the firm.” Harris said that “a typical analyst can do six to eight really good projects a year at the most.” Sequoia’s 20 analysts therefore yield about 120 or so proposals a year for consideration. And it has worked. If you invested $10,000 in the Sequoia Fund in July 1970 and never touched it, you would have had $3,961,656 on June 30, 2017. The fund is up an additional 8 percent so far this year. “If your happiness is defined by ‘How many ideas do I get into the fund every year?’ then you’re going to be frustrated,” Harris said. “You can go a year or two or three without putting anything in the portfolio. If you can contribute one really great idea, a big idea every five years that we can scale up and that really works, you are doing a heck of a job.” The company tries to discourage pride of ownership so an analyst doesn’t become hellbent on getting an idea through the five-person investment committee. Still, alphas from Yale or Harvard aren’t likely to be happy beavering away on projects that never reach fruition. It’s not unheard of for a Sequoia analyst to spend a decade investigating a company, going to annual meetings, talking to dozens of employees, managers, customers, suppliers. “We followed CarMax for a decade before we ever bought the stock,” Poppe said. Harris visited 100 stores before the company made a bet on O’Reilly Auto Parts, which has been a huge home run. Sequoia bought the position in the summer of 2004 at a basis of $19.84. Today, it’s worth around $200. “We ignore whatever the daily news is, whether it’s the latest twist in the health-care legislation or the latest blip from the Federal Reserve,” said Roger Lowenstein, one of Sequoia’s outside directors and the author of a book on Buffett. “They just think about what business they want to be part owners of going into the future.” At first, Valeant appeared to be another success story. As Poppe put it: “Valeant and the chief executive [Michael Pearson] had a good insight, which is that the U.S. pharmaceutical industry was spending a lot of money on [research and development] and not getting a great return on original research and development ideas.” “What if you could build a pharmaceutical company using low interest rates and cheap cost of capital to acquire products in some area where the doctors . . . have a lot of authority over prescribing?” Poppe said. “That strategy made sense to us. And it worked for a pretty good period of time.” But what Sequoia married itself to was an offshore drug company that borrowed heavily to buy other drug companies, cut costs and research, then raised prices on many older drugs to astronomical heights. It quadrupled the price of a 55-year-old drug that treats a rare genetic disorder. The Valeant playbook repeated this high-risk, debt-laden tactic through 30 acquisitions in five years. “Goldfarb became very enthralled with the Valeant chief executive,” Morningstar analyst Kevin McDevitt said. “He looked at Pearson as a once-in-a-generation capital allocator. That’s kind of what Sequoia did with Berkshire Hathaway. Berkshire was the rock of this portfolio. They tied themselves to one stock and made it their centerpiece.” Around 2010, Ruane, Cunniff began buying 34 million shares at around $19, which came to about a $650 million investment. By 2015, that stake had risen above $8.5 billion, riding the arc of Valeant’s stock price to $260 per share. [Meet the woman who gives bridge tips to Warren Buffett and Bill Gates] Then-Sequoia director Sharon Osberg worried that Valeant was too big a piece of the portfolio. “Sequoia continued to buy when I felt it was an extremely risky investment and way too large a percentage of our portfolio,” Osberg said. “It was a huge threat to the fund.” By fall 2015, Valeant showed signs of souring. “The Valeant management team made an acquisition in 2015 at a very high price,” Poppe said. “They paid for the whole thing in debt, so that added a lot of risk to the business.” But Sequoia failed to adjust. Goldfarb in October 2015 decided to buy more shares, even as the stock was dropping by half to around $120 a share. The drop came as Valeant cut its ties with a controversial mail-order pharmacy called Philidor after it was accused of being a “phantom pharmacy” used to artificially boost sales. Osberg had seen enough. “It was during a board phone call when we were discussing this, and somebody, it might have been me, said, ‘You are not buying more Valeant, are you?’ ” Osberg recalled. “And Bob [Goldfarb] had just made another large purchase by the Sequoia Fund. I resigned the next day.” In 2016, Sequoia finally sold its shares in Valeant in the high $20s, or for about $1 billion. Lowenstein said he was not concerned with the initial stakes that Sequoia bought. “We have had various positions in the high single and even in the low double digits” as a share of the portfolio, Lowenstein said. “When, through appreciation, it grew and became a much bigger part of the portfolio, each of the outside directors expressed concerns.” At the end of the day, in the world of investing where stock-pickers are judged by knowing when to take some chips off the table, Sequoia had waited too long. Its performance took big hits for three years in a row — in 2016 by a whopping 18.86 percentage points. Some investors are still angry. “They made a huge mistake,” said Steve Goldberg, who runs Tweddell Goldberg, an investment management firm in Silver Spring, Md. Goldberg said he made money with Sequoia but got out when Valeant started plummeting. “This was literally a drug company that was doing no [research and development]. They just bought the drug and raised the price on it. A hell of a business model. Why did they buy a company that wasn’t doing anything but [acquisitions]?” Valeant’s denouement included a tense Senate hearing; the departure of Pearson, once the highest-paid chief executive in Canada, at $182.9 million; criminal charges involving fraud; and kickbacks involving the mail-order pharmacy. Activist investor Bill Ackman, long a defender of the company, eventually surrendered his Valeant shares at a $4 billion loss. How, with all its deep research and money minds, did Sequoia get this so wrong? The decision to invest and stick with Valeant “was not about one person,” Poppe said. There is no good answer. “It almost begins to feel like a Greek tragedy,” McDevitt said. “Goldfarb had been revered in the industry, and rightfully so. For years, he would get it right, even when people said it was wrong. If you are successful when the market says you are wrong, it can create a sense of hubris. It can leave you overconfident in your own opinions and can set you up for a big fall. And that is what happened.” Ruane, Cunniff & Goldfarb, with offices in the famed Solow Building, pulls in more than $100 million a year in revenue from its 1 percent annual fee on the combined $11 billion that the firm manages. (Astrid Riecken for The Washington Post) High expectations It is free-lunch Friday at Sequoia, and this reporter is stunned at the view as I enter the 50th-floor offices where the Sequoia Fund is headquartered. The company is ensconced on the top floor of 9 W. 57th St., New York. The Solow Building, informally named for its owner, speaks money. Current and former tenants include the French fashion and fragrance company Chanel and private equity firms Kohlberg Kravis Roberts and Apollo Global Management. I once asked a prominent real estate mogul in New York, “What is the most prestigious and valuable piece of New York commercial real estate?” Nine West 57th, he said without a moment’s pause. Its architect was one of the most prominent of the mid-20th century, Gordon Bunshaft of Skidmore, Owings and Merrill. Owner Sheldon Solow, a college dropout and son of a bricklayer, rode this marble-and-glass landmark to a $4 billion fortune. Ruane, Cunniff can afford the offices. Its 1 percent annual fee on the combined $11 billion that the firm manages creates more than $100 million a year in revenue. [The story behind Atlantic owner David Bradley’s ‘biggest business failure’] Over the years, the firm developed an almost cultlike, word-of-mouth following. It stopped taking on new clients for many years so its assets did not become unwieldy, which would make it difficult to find companies that could positively affect results. Fewer clients also meant fewer assets under management. And fewer assets meant the 1 percent fee was collecting from a smaller pot, which in turn meant less income for the owners. The founders didn’t care. “Bill and Rick had a strong conviction that they wanted to die having beaten the S&P 500 more than they wanted to die having maximized our assets under management,” Poppe said. The $100 million covers salaries for its 60 employees, including Wall Street salaries for its 20 analysts who travel widely researching companies. There are legal expenses, trading and regulatory expenses, fees and expenses for the fund’s directors. If there are profits after expenses, they are paid in distributions to the Ruane, Cunniff private owners, comprising employees and outside shareholders, including the Cunniff family. There are more than a dozen shareholders in all. The firm nurtures a filial atmosphere with an almost solemn devotion to the legacy of the founders and their value-based belief system. One keeper of the flame is Jonathan Brandt, the resident Berkshire Hathaway analyst and 25-year employee whose father worked at Ruane, Cunniff. His father was an intimate of Buffett’s. Everyone seems to have tenure. “I can only think of two people who have left over my 25 years here,” Brandt said. “They generally don’t leave.” Poppe, a former journalist with the Miami Herald, has been at the firm 18 years. Harris, 15. Former Wall Street Journal reporter Greg Steinmetz, 17. In the wake of the Valeant affair, the firm has overhauled its stock-picking process. Under the old system, Goldfarb, Poppe and one other rotating analyst decided when to make an investment and whether to end one. That has changed to a five-person investment committee requiring four votes to make a move. “Four-to-one strikes us as a high hurdle,” Poppe said. “Something has got to be really good, and there’s got to be great conviction before we want to make that investment.” Were they ever worried the firm was not going to survive Valeant? Poppe paused a second. “I worry about everything,” he said, “but I didn’t actually worry that the firm was not going to make it.” Harris added, “Not for a second.” Several members of the senior team have doubled down on Sequoia by purchasing its shares. Most of them have virtually their entire net worth tied up in the firm, through direct ownership of shares in Ruane, Cunniff or through ownership of Sequoia Fund shares. Sequoia is prospering, with year-to-date returns just shy of 10 percent. Morningstar’s McDevitt said it could use a home run. “This is a time where from an optics standpoint,” he said, “they want to be performing really well.” Poppe and his senior team said performance will go a long way to washing away the Valeant stain. “We have to do a great job for our clients,” Harris said. “Pretty much everybody at this firm came here because they thought it was . . . one of the few beautiful cathedrals to value investing. And they wanted to live and work inside it. “If it’s got a little bit of dirt on it now, then we need to wipe it off and get back to doing what we’ve always done.”

Cardboard, I agree we need something more. Why not just pay down $40 mill or so of debt right now rather than talking about doing it by year end. This alone would save close to $1 mill in interest expense. The settlement they got should almost be treated as "found money" so spend it now to reduce debt since that is what he keeps talking about!

More than 90% of investors vote in favour of Fairfax deal despite dilution Bob Diamond, co-founder of Atlas Mara, on Friday welcomed the strong backing from investors to sell more than a third of the African banking investment vehicle to Canada’s Fairfax Financial. “This means we have secured a $200m capital injection to invest in sub-Saharan Africa. I feel terrific,” Mr Diamond told the Financial Times. “This is a very strong partner, which has resounding support from shareholders.” He made his comments after more than 90 per cent of investors voted in favour of the sale. The deal, which will partly fund Atlas Mara’s investment in a Nigerian bank, leaves existing investors in the London-listed vehicle facing painful dilution, including Janus Capital, Wellington Management, Guggenheim and Mr Diamond himself. However, the former Barclays’ chief executive — nicknamed “Bobtimistic” by former colleagues — remained resolutely upbeat, saying: “Investors are pretty excited. We are now able to get to the next stage of our Nigerian investment at a very low price.” Atlas Mara will use some of the money to increase its holding in Union Bank of Nigeria. It plans to buy an indirect 13.4 per cent shareholding in UBN, taking its combined direct and indirect holdings in the Lagos-based bank to 44.5 per cent. UBN plans to raise capital via a share issue later this year, which could allow Atlas Mara to increase its stake above 50 per cent. Taking control of UBN’s N1.3tn ($4bn) of assets would more than double Atlas Mara’s $2.7bn balance sheet. Please use the sharing tools found via the email icon at the top of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour. https://www.ft.com/content/12f0f24c-68b2-11e7-9a66-93fb352ba1fe?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo Mr Diamond said it was a “great time” to buy a mid-sized Nigerian bank even though the country has been hit by its worst economic slowdown since 1991 after the collapse in oil prices in mid-2014 sparked a fiscal crisis. “We are going to get in to one of Nigeria’s best banks with the total stake having cost less than 50 per cent of book value,” he said, adding that there were “green shoots” in Nigeria, citing a recent uptick in oil production and an oversubscribed sovereign bond issue. “I think we will look back in a few years and say: ‘Can you believe we were able to get a majority stake in a major Nigerian bank for anything less than book value, never mind a significant discount’,” said Mr Diamond, who plans to visit Nigeria after the summer. Atlas Mara, which has suffered an 80 per cent fall in its share price since its 2013 listing, plans to raise $100m through an offering of new shares, and a further $100m through the issuance of a mandatory convertible bond to Fairfax. Fairfax, which is run by Canadian investor Prem Watsa, will also have the right to secure a minimum of 30 per cent of the share offering, and will subscribe for any stock not taken up by existing shareholders.

hi thelads, i think the shift to passive/ETFs is here to stay. being a natural skeptic anytime someone says "this time is different," i was initially skeptical that this shift would be permanent. but i think by now, the average investor realizes, esp in a low return world, how important fees are to his return, and also, more importantly, how bad his fund manager has performed relative to the benchmarks. its been a double whammy to the average investors investment goals and my guess is alot of people are at the tipping point where they say i'll just invest in different passive etfs to achieve my goals (say 25% in s&p 500, 25% in small/mid cap, 25% in msci eafe, 10% emerging, 10% real estate/commodities, 5% fixed income, etc). i think when people see WEB in the news making statements like "90% of my wifes assets are to go into the s&p 500 etf when i die" people take notice of that. so this should further strengthen the moat of companies that have scale and infrastructure in the passive etf space like a vanguard, or blackrock, state street etc. having said all this, i also think ironically, the shift to passive etf space is likely to bring a more inefficient market and investment opportunities for those that are able to do the analysis and have conviction etc. based on your writings to date, i'm gonna guess you were at merrill during the GFC! no need to confirm or deny that on the board. ;) fyi, semerci and i lived in the same building in tokyo. i saw him around alot but never spoke with him. he didnt seem the kinda guy that enjoyed small talk etc. i'm pretty sure even if you werent at merrills, you would have an opinion of him...lol peace

thanks for your feedback thelads. but i think we certainly do want to be careful here and not insinuate that jabba the hut or anyone else at APO has been bribing federal judges!! from my upper left field seat of the buyout firms, i've always thought highly of leon black. he comes across as honest and straightforward in the interviews i've seen him talk or read. he's clearly one of the brightest minds in finance, or else milken wouldn't have named him head of m&a in his early 30s at drexel. their PE business gets most of the headlines, some not so positive, but that business is much smaller than their credit business ($45 bill vs $141 billion). the reason why i choose to invest with them is kinda similar to what you wrote. they are tough, and difficult to deal with when the s*it hits the fan (Caesars Reology etc). but thats exactly why i want to be on the same side as them when that happens knowing they are fighting for me and i am more than happy to pay them the mgmt and incentive fee when things work out well. i will also say they are by far the most value oriented and contrarian of the PE shops (more so than oaktree). they regularly boast of their deals done at roughly 6-6.5x leverage whereas most PE shops do them closer to 8-10x. i choose to invest in AINV due to their ability to co-invest alongside the parent in deals and leverage those relationships etc. the loan they did to Westinghouse was an example of the power of the broader APO platform and how AINV, in turn, can benefit. thank you for the feedback about BLK as well. Larry Fink is a man of impeccable character. I got to know his son Josh and the apple doesnt fall far from the tree. Strangely enough, its BKCC that has severely underperformed in the BDC space and last year BLK took full control of the mgmt and i am hoping that now that it is fully under the BLK platform, things will improve in terms of sourcing, control, mgmt, fees etc. So far, things appear to be headed in the right direction. i could keep reading/writing about this thread for a long time more! keep it coming!

hi awindenberger, sorry, the CFO did not give those out. for 2017-2019, its reverse math, and from 2020-2022, its an assumption since the PPAs go out till then.

Thanks Cardboard...During the AGM, CFO provided good guidance for 2017,2018 and 2019 Year EBITDA OH CF Debt EX Cash Debt/CF 2017 250 23 225 847 56 3.75 2018 190 23 165 747 61 4.50 2019 190 23 165 652 99 3.95 2020 Flat 536 102 3.25 2021 Flat 444 135 2.70 2022 Flat 356 177 2.15 2023 Flat 217 173 Does not include sale of Piedmont which has a $54 balloon next August. My guess is that they probably take some of their cash to pay the balance down to $40 then refinance to bring the cost of debt down from 8.5% to 5.0% Sale would take debt down to approx $600, cash will be over $100 million and leverage ration exiting 2019 will be close to 3.5X From 2020 I used the required scheduled payments on their credit facility and assumed flat cash flow till the next wave of PPA exp. As you can see cash still builds so the question is can Moore create value by either improving efficiency with internal capex projects, buying debt, preferreds or common at a discount over the next 5 years. Got to be an easy double by then??? 15% annual return with a high degree of certainty??

One other thing that I totally forgot to add about the incredible long term compounding record of WEB/Munger, and which in my opinion, is the hardest to copy/follow/master, is the emotional discipline they have. The ability to sit on your ass and do nothing when that is the best option is awfully hard for alot of people. Esp in the asset mgmt/broker world. As thelads can surely attest to, if you came in to work and decided to just sit back in your chair and read all day, you prolly wouldnt last very long! i've seen analysts do 6 months of work on a company, develop models that break down cash flows 10 years out, buy the stock and when it drops 10% in 3 months, they sell! like really?! you did all that work and when its 10% down on really no news, you decide to bail?! the career risk that grantham as talked about is so real in the industry. and this all ties to emotional discipline and patience. thelads, because i own some BDCs, what is your opinion of Apollo and Blackrock? i'm sure you've interacted with them in the credit space. are there smart people working there that are hard working and have integrity? or should i be looking to sell AINV & BKCC?!