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CBI - Chicago Bridge & Iron

Aberhound

By Aberhound
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Wabash02 Newbie

Wabash02

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How do you all think this de-risks the thesis?

 

It reminds me of a story I read about Soros years ago with the Yen (I think that was the currency).  All the traders in the room were long (or the same way at least) and once the critical news broke, and the market moved in their favor, Soros knew they would take $$, so he jumped up and yelled that no one was allowed to sell in the open market, he would take all the positions of anyone wanting to sell.  The point was that, once the de-risk happened, he wanted to be in even bigger since the move was likly to persist for a while.

 

I personally bought in this morning after it had already moved to 17.50 or so (thats when I heard the ruling.)  I got in in a fairly small way, and have been thinking about adding.  We could easily see it back in the 30's before too long...

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racemize Newbie

racemize

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I personally think the stock should be well in the 20's off this news alone, and would even argue for the 30's, but I didn't think it should be this low in the first place.  If we get the debt deal closed, then a huge amount of risk is off the table.

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MaxDC Newbie

MaxDC

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If you saw the oral arguments and the court opinion, you know Chief Justice Strine is a man of common sense. Some other justices tend to be more into precedent rulings, he was straightforward.  8)

 

Maybe Veritas Capital did a little gambling on the outcome of this ruling to get a better, I dont know. Hope they close soon, there should be no obstacles.

 

My focus right now is on the collectability of the $400 mn CBI will be entitled to after the ruling and the $229 mn they were talking about receiving, when the projetcs are finished.

1. will the $400mn be paid to CBI after the arbitrator decided or is that also impacted by the bankruptcy?

2. some analyst said that only $70 mn are up to decide for the arbitrator after the ruling, so CBI is at least having a claim on 350mn?

3. CBI was to receive $229 mn once the projects were finished. (i think CBI has already written that off) as toshiba is now walking away from the projects, do these amounts come due?

 

if all these claims are subject to the bankruptcy process, I guess CBI will be the largest holder of claims against Westinghouse as the utilities lose their claims against Westinghouse as they receive the 3-4 bn for each project from Toshiba, right? Is there any upside to this??

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racemize Newbie

racemize

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If you saw the oral arguments and the court opinion, you know Chief Justice Strine is a man of common sense. Some other justices tend to be more into precedent rulings, he was straightforward.  8)

 

Maybe Veritas Capital did a little gambling on the outcome of this ruling to get a better, I dont know. Hope they close soon, there should be no obstacles.

 

My focus right now is on the collectability of the $400 mn CBI will be entitled to after the ruling and the $229 mn they were talking about receiving, when the projetcs are finished.

1. will the $400mn be paid to CBI after the arbitrator decided or is that also impacted by the bankruptcy?

2. some analyst said that only $70 mn are up to decide for the arbitrator after the ruling, so CBI is at least having a claim on 350mn?

3. CBI was to receive $229 mn once the projects were finished. (i think CBI has already written that off) as toshiba is now walking away from the projects, do these amounts come due?

 

if all these claims are subject to the bankruptcy process, I guess CBI will be the largest holder of claims against Westinghouse as the utilities lose their claims against Westinghouse as they receive the 3-4 bn for each project from Toshiba, right? Is there any upside to this??

 

In the oral arguments, they indicated 70-100 million was up for debate, so I could see potentially some pay to CBI, but I'm not banking on it.  A good bonus if it happens.

 

I don't think CBI will have much to stand on for 3) in the bankruptcy process as the projects won't have been completed.

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Picasso Newbie

Picasso

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Damn it. Looks like this Delaware supreme court is not as supreme as I thought. Lawyer wife tells me that Westinghouse can still appeal in the 2nd circuit court unless they settle.

 

Not sure if I'm just hungry but this made me suddenly crave a Chalupa Supreme and I haven't eaten at a Taco Bell in years.

 

https://www.tacobell.com/food/specialties/chalupa-supreme

 

Great call xazp!

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xazp Newbie

xazp

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A couple of observations -

A) CBI is close to de-risking Westinghouse and their balance sheet.  The cost overruns are still out there, but at some point they'll set reserves from those and earnings from then on should be fine.  So at that point, it seems like they could earn $3.50/share or more.  A de-risked, lower debt CBI probably deserves a 10x multiple more more, so $35+ seems possible.  At one point, the technology division meant that CBI deserved a premium to their competitors ... so an even higher multiple than 10x seems plausible too. 

 

B)  MaxDC: I don't know for sure on the collect-ability.  It's a good question.  I was mostly focused on it going from -$1Bn to $0.  But it's definitely possible that Westinghouse ends up owing a big chunk to CBI.  My sense (but I'm not sure!) is that CBI would come above both Toshiba (current equity holder) and the nuclear contracts (I think those nuclear contracts are what's really killing Westinghouse) in priority.  But I don't think Westinghouse has a ton of cash to spend, so ... argh could CBI end up owning equity or debt in Westinghouse?  Can this vampire never die??

 

C)  The $70 million you see referenced, is CBI's view of how much money is up for debate in front of the auditor after the big issue was ruled on.  Their view is Westinghouse owes them $400M, and that Westinghouse could plausibly argue that $70M of the $400M really should be returned to Westinghouse.  Westinghouse has a different (unstated) view.  But I think the important part that CBI alludes to is, they think the difference in opinion between Westinghouse and CBI is now "immaterial" so that the gap is small enough for them to settle rather than suing each other repeatedly.  That would be great news. 

 

D)  I think Veritas will close.  I have a simple article going up on SA in the next day or two which supplies the reason why.  Mostly that article is about shaming analysts who made up big Westinghouse losses - they should be immediately raising their price target by like $10/share or something. 

 

E) Valcont: I don't think it's that simple. The Delaware Supreme Court is supreme insofar as it concerns Delaware state law.  Contracts are generally state, and not federal, and I believe this one is governed by Delaware, thus the court. 

 

In order to "go federal" you'd have to find a reason that CBI violated federal law or the constitution.  It's possible, I suppose, but it would be an uphill battle for Westinghouse.  One potential way would be to accuse CBI of fraud, that they deliberately misrepresented their books.  But Westinghouse seemingly blew this path out of the water when they (strangely) seemed to acknowledge they knew that the books were wrong when they signed the purchase agreement.  I just don't think this has a high probability of working because this is contract law, contract law = state law. 

 

 

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Picasso Newbie

Picasso

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CBI reminds me a bit of EBIX after the short sellers were talking about some massive IRS liability of $100+ million.  Turned out the IRS liability was about $1 million and the stock popped from $16 to $20.  The stock was arguably a much better long at $20 once you derisked it but many were so turned off by some of the shadier company issues that it didn't matter you had a nice growing business at 10x earnings where the short thesis basically got blown out of the water.  It would have been nice to load up in the $12's but it still made a ton of sense to long EBIX at $20.  That's probably the case here too.  Go talk to ten investors familiar with CBI and they'll all tell you they don't like the same things like management and the business. 

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MaxDC Newbie

MaxDC

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@xazp

 

We'll see how it plays out but we agree that CB&I is the largest creditor of Westinghouse by now (of the ones listed in the bankruptcy filing)

 

I just want to mention one more thing that came up a few weeks ago. It was that CB&I flied some motion to receive north of $50mn from I guess the utilities for work that it has performed after the bankruptcy

 

http://www.neimagazine.com/news/newstoshiba-signs-agreement-with-georgia-power-5840898

 

Any news on that?

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xazp Newbie

xazp

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Good article, I didn't know about this.  It suggests $50M+ of money is coming in in Q4.  And this is the point I've tried to make about "unapproved change orders."  People see them as a big risk (some cases they are).  But the vast majority of these convert into "free" cash flow (in the sense that the expenses were already paid).  When there's a dispute, CBI can file liens which puts a lot of pressure on the owners to settle.  I've done some construction and my feeling is that people underestimate the amount of leverage a construction company has.  I've been told before, well if you don't approve the change order, we can't continue and your project will be delayed indefinitely. 

 

Anyway, back to the Capital Services sale, which is probably the next piece of positive news:

https://www.moodys.com/research/Moodys-assigns-new-ratings-for-Capital-Services-B3-CFR-B3--PR_368249?

https://www.moodys.com/research/Moodys-Publishes-Covenant-Quality-Assessment-for-CSVC-Acquisition-Corp-Bond--PR_368858

 

I think these two "articles" by Moodys indicate a bond offering was done ... yesterday?  today?  tomorrow? (the second article refers to the bonds as "has assigned" to $515M of notes due 2025). 

 

Anyway, issuing bonds indicates to me that the deal is going to complete "soonish." 

 

 

 

 

 

 

 

 

 

@xazp

 

We'll see how it plays out but we agree that CB&I is the largest creditor of Westinghouse by now (of the ones listed in the bankruptcy filing)

 

I just want to mention one more thing that came up a few weeks ago. It was that CB&I flied some motion to receive north of $50mn from I guess the utilities for work that it has performed after the bankruptcy

 

http://www.neimagazine.com/news/newstoshiba-signs-agreement-with-georgia-power-5840898

 

Any news on that?

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dcollon Newbie

dcollon

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Posted

Seriously xazp?  Nice call.

 

Chicago Bridge completes sale of its Capital Services business to an affiliate of Veritas Capital for $700M

Friday, June 30, 2017 03:37:04 PM (GMT)

 

CB&I announced it has completed the sale of its Capital Services business to an affiliate of private equity firm Veritas Capital.

CB&I and Veritas Capital agreed to amend the sales price to $700M, with net proceeds of approximately $650M after working capital adjustments and transaction costs.

CB&I will record an additional non-cash pre-tax charge of approximately $50M in Q2 of 2017 to account for the change in sales price.

"Completing the sale of our Capital Services business is a significant milestone in CB&I's plan to delever our balance sheet, and we expect an additional positive impact on our overall business by recognizing related cost synergies."

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