IFT - Imperial Holdings

[ukvalueinvestment]

 

 

So Beal has put a gun to their head, either equitize converts (plus I think they need another 20 to 30mil on top for secd bonds and breathing room) OR sell.  Given they have less than 6 months of runway the sell price has obviously dropped a lot.

 

 

 

I don't quite follow what Beal's incentive is to put a gun to their head?  He has a very nice asset, earning c6% (4.5% + floor), well collaterlized and the more time elapses, the more these assets rise in value and tend towards the intrinsic value.  Surely he doesn't want a firesale, rather he wants this loan to exist for as long as possible, while taking every opportunity to squeeze out more fees, higher interest etc. 

[ukvalueinvestment]

I sold.  Too high a chance this is a 0 or very close to one after dilution for my liking.

 

I could be wrong and someone swoops in to buy, but I don't see that happening at prices an equity holder would like.

 

Will still follow, when this all shakes out there still could be an opportunity once funding method for this business is clear.

 

I bought.  I am thinking of it as a Kelly style options bet, with a good chance of a zero, but a multi bagger if it works out.  The thing is trading at a fraction of book value, with the right capital structure.  If there is good news on the capital structure, and the chance of a zero goes away, I buy more and turn it into a core holding.

[TBW]

I think Beal's motivation is to avoid further negotiations and restructurings.  I agree this is a great deal for Beal as long as the holdco can operate the assets and Beal doesn't have to themselves.  This 2x covenant is forcing EMG to sort out its capital structure now so the holdco can service the assets indefinitely.  It's forcing EMG to help itself.

 

I hear you that once the capital structure is sorted out there should be a lot of value here.  That's why I bought on first press release...  The issue I have is that they need to convert the converts into equity asap.  One to unlock some cash at the holdco (eliminating convert coupon releases 7mil in cash) and two there is now way they can repay them.  Second I think they need more cash on top of that.  A buffer of some type.  Call it 20mil (it could be more).  If they did both in shares at say $0.40 that would be an additional 226mil shares for a total of 255mil and mkt cap of $102mil. 

 

I am also sceptical of the upside too.  Let's say they get just shy of 30% of 3bil in insurance for 855mil, they have to pay 10yrs of HC costs call it 9mil per yr or 90mil, they have to pay facility int along the way of 293mil (as I see it), I also think there will be a stub of debt left after all premiums paid of 164mil (this part not 100% clear on), and then 30mil of secured.  So lets say total of 855-90-293-164-30 = 277mil, discount back to today at 10% is mkt cap of 107mil.  If I am wrong on the 164mil of stub debt left after all insurance is collected, then total value would be 442mil, discount back at 15% gets mkt cap of 106mil.  All very rough numbers but I think you see my point.

 

Other issue is with all the above dilution they still don't have enough to pay 30mil sec'd as it comes due.  There is also the issue of the cashflows received being less than projected causing the need for more capital.

 

There is a future value here.  I certainly agree.  To me its just not clear which part of the capital structure realizes it.

 

 

[TBW]

Anyone going to this annual meeting?

 

I had planned to go but unfortunately I can't make it.

 

If anyone is, please let me know.  I would like to chat about questions I had for the new owners.

 

Thanks

[ukvalueinvestment]

Emergent Capital announced today that their recapitalisation has now completed.  Thoughts?  This is extemely cheap, isn't it?

[TBW]

I have been buying and i agree. Complicated but cheap. Many questions remain. Will new management do needed cost cuts? Will they have enough capital to pay converts when due, or do they buy out below par? Does valuation of insurance fully emcompass longevity?

 

Risky but likely compensated for it