FGE.to - Fortress Paper (formerly FTP.to)

[Edward]

From an ROE standpoint for shareholders, ensuring Thurso & LSQ are fully operational probably takes precedence to buying back debt at relatively moderate discounts, creating small one time profits. Plus you want to avoid liquidity issues while executing on such large projects. I would be careful if I were them.

[lessthaniv]

FFHWatcher ... I agree with you ... just think there should be balanced approach.  Am not saying they should buy back a lot of shares ... and am saying they should pay down some debt ... just that they could now take advantage of the fact that ~1/2 the debt is convertible, and ~1/2 is non-recourse ... and that 1/2 of the overall debt is not due for another 5 years.    Their balance sheet will be way better once this closes ... they will want to keep it that way.

 

They don't have the option at this point to redeem the convertibles. The 6.5%'s cannot be redeemed prior to Dec 31,2014 and the 7%'s cannot be redeemed before July 1, 2015.

 

Probably can't redeem them yet but couldn't they buy them on the open market and cancel them?  Isn't a redemption and a buyback different things?  TSX approval usually required for any buyback.  I'm surprised the debentures didn't rise further today with the significantly increased liquidity for the company.  IF he were to do a buyback he would probably look at the shares vs the convertibles to determine which makes more sense to do.

 

Once they are past the redemption dates, they'll be able to redeem converts on the open market, by tender or by private contract.

 

Excluding the privately placed convertibles;

 

1) $69M 2019's with $31 CP --------------->(This implies potential dilution of 2,225,806 shares)

2) $40M 2016's with $37.50 CP ----------->(This implies potential dilution of 1,066,667 shares)

 

Total potential dilution for these two issues is 3,292,473 shares or roughly 23%.

 

At today's closing price of $10/share the company could use $33M of its new found cash hoard to buy in stock and hold it in treasury. It would offset the dilution risk presented by the converts. If the stock price doesn't get back to the CP's prior to redemption dates, the company could redeem the converts and eliminate the debt and dilution risk. Should the stock price rise past the CP's and shares get issued, the company could simply cancel their treasury stock and offset that dilution. Treasury stock could be resold in a liquidity pinch.

 

Assuming that mgmt/board determines that the company has ample liquidity to fund LSQ etc, what precludes the company from buying converts in the open market?  I'm not talking about calling the converts at par at the redemption dates (i.e., redeeming), I'm talking about buying converts in the open market (currently at a discount to par:  about 74.5 cents on the dollar for the 7% converts due Dec 2019, and about 84 cents on the dollar for the 6.5% converts due Dec 2016).  I presume they'd need TSX approval (as in the case of buying stock in the open market), but is there another obstacle to making open market purchases of converts?

 

From the prospectus for the 7%:

 

Redemption and Purchase 

The Debentures will not be redeemable before July 1, 2015 (except in the event of certain circumstances described under "Change of Control of the Company"). On and after July 1, 2015 and prior to July 1, 2017, the Debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On or after July 1, 2017 and prior to the Maturity Date, the Debentures may be redeemed in whole or in part from time to time at the option of Fortress at a price equal to the principal amount thereof plus accrued and unpaid interest. 

In the case of redemption of less than all of the Debentures, the Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner as the Debenture Trustee deems equitable. 

The Company will have the right to purchase Debentures in the market, by tender or by private contract.

 

In Layman's Terms:

 

Cannot redeem before July 1,2015

Between July 1,2015 - July 1, 2017 : Can redeem with appropriate notice assuming the stock is holding 125% above CP

After July 1, 2017 - Maturity: Can redeem at a price equal to the principal amount thereof plus accrued and unpaid interest.

 

 

[lessthaniv]

BAL is gapping up:

 

http://www.reuters.com/article/2013/03/15/china-cotton-import-idUSL3N0C75KE20130315

 

_____________________________

 

UPDATE 1-China to issue extra cotton import quotas as supplies tighten-trade

 

Fri Mar 15, 2013 1:46am EDT

 

* China to issue additional cotton import quotas around April

 

* Beijing stockpiled 93 percent of 2012 domestic cotton harvest

 

* Domestic cotton stockpiling to finish by end-March (adds more details)

 

BEIJING, March 15 (Reuters) - China, the world's top consumer of cotton, will issue extra cotton import quotas to textile mills by around April after purchases for the government's stockpile cut domestic supplies, trade sources said on Friday.

 

The market expects Beijing to allocate as much as 800,000 tonnes of import quotas, most of which will be issued to textile mills that export their products, traders said. That will add to 894,000 tonnes of low-tariff quotas issued earlier this year.

 

"Cotton supplies are getting tight and these mills need quotas to start purchases," said one trader with an international trading house.

 

Active purchases by China, the largest importer, will support New York cotton prices, which hit their highest in nearly a year on Thursday, supported by merchant and speculator buying.

 

Beijing normally does not announce the amount of extra import quotas issued. Mills will have to pay a tariff on any imports, which is set at 5-40 percent depending on international prices.

 

Mills that export their products would win about 600,000 tonnes of the new quotas, a second trader with a major international trading house said.

 

The Chinese government has been stockpiling cotton after offering a floor price to support farmers, amassing about 10 million tonnes or 60 percent of world stocks. The 7-month scheme will finish at the end of March.

 

By Thursday, the government had purchased 6.37 million tonnes of cotton from the 2012 harvest, accounting for 93 percent of the 6.84 million tonnes harvest.

 

China's textile industry, the world's largest, has blamed the stockpiling policy for pushing domestic cotton prices <0#CCF:> well above global prices and has been urging Beijing to issue more quotas for cheap overseas supplies.

 

Analysts expect the government will also step up state sales from April and estimate that 3 million to 4 million tonnes of state cotton will be sold to the domestic market in coming months.

 

Chinese textile mills consume an average of about 700,000 tonnes of cotton a month. (Reporting by Coco Li, Niu Shuping and Fayen Wong; Editing by Richard Pullin)

 

[BRK7]

FFHWatcher ... I agree with you ... just think there should be balanced approach.  Am not saying they should buy back a lot of shares ... and am saying they should pay down some debt ... just that they could now take advantage of the fact that ~1/2 the debt is convertible, and ~1/2 is non-recourse ... and that 1/2 of the overall debt is not due for another 5 years.    Their balance sheet will be way better once this closes ... they will want to keep it that way.

 

They don't have the option at this point to redeem the convertibles. The 6.5%'s cannot be redeemed prior to Dec 31,2014 and the 7%'s cannot be redeemed before July 1, 2015.

 

Probably can't redeem them yet but couldn't they buy them on the open market and cancel them?  Isn't a redemption and a buyback different things?  TSX approval usually required for any buyback.  I'm surprised the debentures didn't rise further today with the significantly increased liquidity for the company.  IF he were to do a buyback he would probably look at the shares vs the convertibles to determine which makes more sense to do.

 

Once they are past the redemption dates, they'll be able to redeem converts on the open market, by tender or by private contract.

 

Excluding the privately placed convertibles;

 

1) $69M 2019's with $31 CP --------------->(This implies potential dilution of 2,225,806 shares)

2) $40M 2016's with $37.50 CP ----------->(This implies potential dilution of 1,066,667 shares)

 

Total potential dilution for these two issues is 3,292,473 shares or roughly 23%.

 

At today's closing price of $10/share the company could use $33M of its new found cash hoard to buy in stock and hold it in treasury. It would offset the dilution risk presented by the converts. If the stock price doesn't get back to the CP's prior to redemption dates, the company could redeem the converts and eliminate the debt and dilution risk. Should the stock price rise past the CP's and shares get issued, the company could simply cancel their treasury stock and offset that dilution. Treasury stock could be resold in a liquidity pinch.

 

Assuming that mgmt/board determines that the company has ample liquidity to fund LSQ etc, what precludes the company from buying converts in the open market?  I'm not talking about calling the converts at par at the redemption dates (i.e., redeeming), I'm talking about buying converts in the open market (currently at a discount to par:  about 74.5 cents on the dollar for the 7% converts due Dec 2019, and about 84 cents on the dollar for the 6.5% converts due Dec 2016).  I presume they'd need TSX approval (as in the case of buying stock in the open market), but is there another obstacle to making open market purchases of converts?

 

From the prospectus for the 7%:

 

Redemption and Purchase 

The Debentures will not be redeemable before July 1, 2015 (except in the event of certain circumstances described under "Change of Control of the Company"). On and after July 1, 2015 and prior to July 1, 2017, the Debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On or after July 1, 2017 and prior to the Maturity Date, the Debentures may be redeemed in whole or in part from time to time at the option of Fortress at a price equal to the principal amount thereof plus accrued and unpaid interest. 

In the case of redemption of less than all of the Debentures, the Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner as the Debenture Trustee deems equitable. 

The Company will have the right to purchase Debentures in the market, by tender or by private contract.

 

In Layman's Terms:

 

Cannot redeem before July 1,2015

Between July 1,2015 - July 1, 2017 : Can redeem with appropriate notice assuming the stock is holding 125% above CP

After July 1, 2017 - Maturity: Can redeem at a price equal to the principal amount thereof plus accrued and unpaid interest.

 

My read of that same excerpt is that redemptions are indeed subject to the notice period and other terms.  Redeeming the converts, I believe, is the same thing as calling the converts from the holders.  In the case of redemption (call), the holder has no choice when their converts called away from them—hence the notice period and full principal (par) requirements. 

 

On the other hand, that last sentence from the excerpt seems to support my contention that the company has the right to “purchase” at the then-prevailing market price or other agreed-upon price. 

 

“The Company will have the right to purchase Debentures in the market, by tender or by private contract.”

 

Whether Fortress SHOULD purchase its converts (or common shares) is another matter entirely.  I would like to see Fortress proceed with extreme caution regarding spending the cash infusion from the sale of Dresden.

 

Between the two, I would view the company's purchase of its converts (especially at a big discount to par) as far more conservative than repurchase of its common shares. For example, in the event that the DP business goes extremely well in the future (conceivably bringing the embedded conversion option “into the money”), repurchasing converts will prove to be anti-dilutive.  If DP business does not go particularly well from here, then at least some debt with recourse to the parent company would have been eliminated.

 

[dartmonkey]

Sorry to ask what seems like an obvious question, but doesn't Fortress's current market cap of $150m seem a bit low, for a company that just sold one of its 3 divisions for $209 million?

 

OK, there will be some taxes to pay on the gain, but still. It seems like the market is basically saying that the two other divisions are completely worthless. True, they just sold the only part of their business that makes any money, but there's virtually no risk of them running out of money anymore, so if the dissolving pulp business is worth anything, the current price seems like a steal.

 

[lessthaniv]

FFHWatcher ... I agree with you ... just think there should be balanced approach.  Am not saying they should buy back a lot of shares ... and am saying they should pay down some debt ... just that they could now take advantage of the fact that ~1/2 the debt is convertible, and ~1/2 is non-recourse ... and that 1/2 of the overall debt is not due for another 5 years.    Their balance sheet will be way better once this closes ... they will want to keep it that way.

 

They don't have the option at this point to redeem the convertibles. The 6.5%'s cannot be redeemed prior to Dec 31,2014 and the 7%'s cannot be redeemed before July 1, 2015.

 

Probably can't redeem them yet but couldn't they buy them on the open market and cancel them?  Isn't a redemption and a buyback different things?  TSX approval usually required for any buyback.  I'm surprised the debentures didn't rise further today with the significantly increased liquidity for the company.  IF he were to do a buyback he would probably look at the shares vs the convertibles to determine which makes more sense to do.

 

Once they are past the redemption dates, they'll be able to redeem converts on the open market, by tender or by private contract.

 

Excluding the privately placed convertibles;

 

1) $69M 2019's with $31 CP --------------->(This implies potential dilution of 2,225,806 shares)

2) $40M 2016's with $37.50 CP ----------->(This implies potential dilution of 1,066,667 shares)

 

Total potential dilution for these two issues is 3,292,473 shares or roughly 23%.

 

At today's closing price of $10/share the company could use $33M of its new found cash hoard to buy in stock and hold it in treasury. It would offset the dilution risk presented by the converts. If the stock price doesn't get back to the CP's prior to redemption dates, the company could redeem the converts and eliminate the debt and dilution risk. Should the stock price rise past the CP's and shares get issued, the company could simply cancel their treasury stock and offset that dilution. Treasury stock could be resold in a liquidity pinch.

 

Assuming that mgmt/board determines that the company has ample liquidity to fund LSQ etc, what precludes the company from buying converts in the open market?  I'm not talking about calling the converts at par at the redemption dates (i.e., redeeming), I'm talking about buying converts in the open market (currently at a discount to par:  about 74.5 cents on the dollar for the 7% converts due Dec 2019, and about 84 cents on the dollar for the 6.5% converts due Dec 2016).  I presume they'd need TSX approval (as in the case of buying stock in the open market), but is there another obstacle to making open market purchases of converts?

 

From the prospectus for the 7%:

 

Redemption and Purchase 

The Debentures will not be redeemable before July 1, 2015 (except in the event of certain circumstances described under "Change of Control of the Company"). On and after July 1, 2015 and prior to July 1, 2017, the Debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On or after July 1, 2017 and prior to the Maturity Date, the Debentures may be redeemed in whole or in part from time to time at the option of Fortress at a price equal to the principal amount thereof plus accrued and unpaid interest. 

In the case of redemption of less than all of the Debentures, the Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner as the Debenture Trustee deems equitable. 

The Company will have the right to purchase Debentures in the market, by tender or by private contract.

 

In Layman's Terms:

 

Cannot redeem before July 1,2015

Between July 1,2015 - July 1, 2017 : Can redeem with appropriate notice assuming the stock is holding 125% above CP

After July 1, 2017 - Maturity: Can redeem at a price equal to the principal amount thereof plus accrued and unpaid interest.

 

My read of that same excerpt is that redemptions are indeed subject to the notice period and other terms.  Redeeming the converts, I believe, is the same thing as calling the converts from the holders.  In the case of redemption (call), the holder has no choice when their converts called away from them—hence the notice period and full principal (par) requirements. 

 

On the other hand, that last sentence from the excerpt seems to support my contention that the company has the right to “purchase” at the then-prevailing market price or other agreed-upon price. 

 

“The Company will have the right to purchase Debentures in the market, by tender or by private contract.”

 

Whether Fortress SHOULD purchase its converts (or common shares) is another matter entirely.  I would like to see Fortress proceed with extreme caution regarding spending the cash infusion from the sale of Dresden.

 

Between the two, I would view the company's purchase of its converts (especially at a big discount to par) as far more conservative than repurchase of its common shares. For example, in the event that the DP business goes extremely well in the future (conceivably bringing the embedded conversion option “into the money”), repurchasing converts will prove to be anti-dilutive.  If DP business does not go particularly well from here, then at least some debt with recourse to the parent company would have been eliminated.

 

I believe that last sentence pertains to how they can implement the redemption once they are able. Note: It's found under the Redemption heading. In other words, once they are able to redeem these bonds post 2015, they can do so by buying out of the maket directly; by putting out a tender offer; or by arranging a redemption via private contract with one or more holder(s).

[lessthaniv]

Sorry to ask what seems like an obvious question, but doesn't Fortress's current market cap of $150m seem a bit low, for a company that just sold one of its 3 divisions for $209 million?

 

OK, there will be some taxes to pay on the gain, but still. It seems like the market is basically saying that the two other divisions are completely worthless. True, they just sold the only part of their business that makes any money, but there's virtually no risk of them running out of money anymore, so if the dissolving pulp business is worth anything, the current price seems like a steal.

 

Welcome to the board.

 

Start at page 1 of this thread. The answers lie within.

 

:)

[BRK7]

FFHWatcher ... I agree with you ... just think there should be balanced approach.  Am not saying they should buy back a lot of shares ... and am saying they should pay down some debt ... just that they could now take advantage of the fact that ~1/2 the debt is convertible, and ~1/2 is non-recourse ... and that 1/2 of the overall debt is not due for another 5 years.    Their balance sheet will be way better once this closes ... they will want to keep it that way.

 

They don't have the option at this point to redeem the convertibles. The 6.5%'s cannot be redeemed prior to Dec 31,2014 and the 7%'s cannot be redeemed before July 1, 2015.

 

Probably can't redeem them yet but couldn't they buy them on the open market and cancel them?  Isn't a redemption and a buyback different things?  TSX approval usually required for any buyback.  I'm surprised the debentures didn't rise further today with the significantly increased liquidity for the company.  IF he were to do a buyback he would probably look at the shares vs the convertibles to determine which makes more sense to do.

 

Once they are past the redemption dates, they'll be able to redeem converts on the open market, by tender or by private contract.

 

Excluding the privately placed convertibles;

 

1) $69M 2019's with $31 CP --------------->(This implies potential dilution of 2,225,806 shares)

2) $40M 2016's with $37.50 CP ----------->(This implies potential dilution of 1,066,667 shares)

 

Total potential dilution for these two issues is 3,292,473 shares or roughly 23%.

 

At today's closing price of $10/share the company could use $33M of its new found cash hoard to buy in stock and hold it in treasury. It would offset the dilution risk presented by the converts. If the stock price doesn't get back to the CP's prior to redemption dates, the company could redeem the converts and eliminate the debt and dilution risk. Should the stock price rise past the CP's and shares get issued, the company could simply cancel their treasury stock and offset that dilution. Treasury stock could be resold in a liquidity pinch.

 

Assuming that mgmt/board determines that the company has ample liquidity to fund LSQ etc, what precludes the company from buying converts in the open market?  I'm not talking about calling the converts at par at the redemption dates (i.e., redeeming), I'm talking about buying converts in the open market (currently at a discount to par:  about 74.5 cents on the dollar for the 7% converts due Dec 2019, and about 84 cents on the dollar for the 6.5% converts due Dec 2016).  I presume they'd need TSX approval (as in the case of buying stock in the open market), but is there another obstacle to making open market purchases of converts?

 

From the prospectus for the 7%:

 

Redemption and Purchase 

The Debentures will not be redeemable before July 1, 2015 (except in the event of certain circumstances described under "Change of Control of the Company"). On and after July 1, 2015 and prior to July 1, 2017, the Debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On or after July 1, 2017 and prior to the Maturity Date, the Debentures may be redeemed in whole or in part from time to time at the option of Fortress at a price equal to the principal amount thereof plus accrued and unpaid interest. 

In the case of redemption of less than all of the Debentures, the Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner as the Debenture Trustee deems equitable. 

The Company will have the right to purchase Debentures in the market, by tender or by private contract.

 

In Layman's Terms:

 

Cannot redeem before July 1,2015

Between July 1,2015 - July 1, 2017 : Can redeem with appropriate notice assuming the stock is holding 125% above CP

After July 1, 2017 - Maturity: Can redeem at a price equal to the principal amount thereof plus accrued and unpaid interest.

 

My read of that same excerpt is that redemptions are indeed subject to the notice period and other terms.  Redeeming the converts, I believe, is the same thing as calling the converts from the holders.  In the case of redemption (call), the holder has no choice when their converts called away from them—hence the notice period and full principal (par) requirements. 

 

On the other hand, that last sentence from the excerpt seems to support my contention that the company has the right to “purchase” at the then-prevailing market price or other agreed-upon price. 

 

“The Company will have the right to purchase Debentures in the market, by tender or by private contract.”

 

Whether Fortress SHOULD purchase its converts (or common shares) is another matter entirely.  I would like to see Fortress proceed with extreme caution regarding spending the cash infusion from the sale of Dresden.

 

Between the two, I would view the company's purchase of its converts (especially at a big discount to par) as far more conservative than repurchase of its common shares. For example, in the event that the DP business goes extremely well in the future (conceivably bringing the embedded conversion option “into the money”), repurchasing converts will prove to be anti-dilutive.  If DP business does not go particularly well from here, then at least some debt with recourse to the parent company would have been eliminated.

 

I believe that last sentence pertains to how they can implement the redemption once they are able. Note: It's found under the Redemption heading. In other words, once they are able to redeem these bonds post 2015, they can do so by buying out of the maket directly; by putting out a tender offer; or by arranging a redemption via private contract with one or more holder(s).

 

No disrespect intended, but the section heading is actually Redemption and Purchase.

 

Anyway, in the next section of the Prospectus (labeled “Payment upon Redemption or Maturity”), note that redemption of the converts is implemented by making payment directly to the Debenture Trustee.  There is no market transaction or purchase involved.  In other words, the converts are redeemed not by “purchase” but rather are cancelled via a payment to the Debenture Trustee.  This is my interpretation, anyway.

 

An interesting (unrelated) point from that same paragraph:  Fortress can, under certain conditions, issue common shares to cover the principal payment upon redemption or maturity.

 

[triedtestedand]

IV:

 

Back to thread on DP market pricing {... notice how wallpaper pricing so rarely came up in conversation ;-) }  BAL and ICE cotton futures definitely trending up to 12mo highs (maybe more on technical buying/speculation, and owing to presence of a futures market?), but checking out CCF headlines about Chinese VSF pricing (and trading volumes), they are not really tracking equivalently recently.  They bounced off December multi-year lows of 13.5K yuan/mt to about 15K yuan/mt, but in past week or two have weakened (on price and transactions) again ... so who knows about the short term view of things.

 

Oh, and on that other line of business they have ... what's it again ... ah yes, banknotes.  Practice your swiss german (or use google translate) on this:

 

http://www.tagesanzeiger.ch/wirtschaft/unternehmen-und-konjunktur/Kanadas-Banknoten-schmelzen/story/10192853

[dartmonkey]

Sorry to ask what seems like an obvious question, but doesn't Fortress's current market cap of $150m seem a bit low, for a company that just sold one of its 3 divisions for $209 million?

 

OK, there will be some taxes to pay on the gain, but still. It seems like the market is basically saying that the two other divisions are completely worthless. True, they just sold the only part of their business that makes any money, but there's virtually no risk of them running out of money anymore, so if the dissolving pulp business is worth anything, the current price seems like a steal.

 

Welcome to the board.

 

Start at page 1 of this thread. The answers lie within.

 

:)

 

I am perfectly familiar with the other 128 pages of this thread, but I have seen no comment on what seems like an obvious discrepancy: the acquisition of one of 3 divisions, for a price well above the total market cap of the company. If you do not care to respond to this discrepancy, feel free to ignore it, but there's no need to be rude, and I would be curious to hear from others whether they think there is a lot of precedent for a company selling a division of itself for well over its market cap.

 

Regards, etc.

[triedtestedand]

Hey dartmonkey ... Am defintely/positively/sure IV wasn't being rude ... welcome.

 

Good point ... it might be useful to look for parallels where divisions have been sold for more than market cap, as it does make a very good sound bite. I can't think of similar situations off hand, but haven't really looked either.

 

Or similarly, based on post sale situation whey will have a lot of cash on balance sheet, the parallel is companies with market cap that's less than cash on hand (or maybe, more broadly, current assets less current liabilities). We could probably find a number of those using a filter on one of the market investor websites.  That might turn up a similar (recent) precedent or two. In such cases of course, situation is typically worry over significant long-term (debt) liabilities, and ability of existing business lines to generate cash to cover such.

[jose]

I don't think IV meant it as rude; he just made the reasonable assumption that you hadn't read the pages given that you are new to the board. This happens often.  You don't have to read all pages to get a good idea, maybe just like the last 10 or 20.

 

If you want a short answer, it has to do with an estimated ~$50M debt net of cash after deal and 2 capitally intensive divisions left that have yet to prove they can turn a profit. 

 

Oh yeah, and also Mr. Market is sketchy.

 

Welcome.

 

 

 

[dartmonkey]

I don't think IV meant it as rude; he just made the reasonable assumption that you hadn't read the pages given that you are new to the board.

 

I don't think IV meant it as rude; he just made the reasonable assumption that you hadn't read the pages given that you are new to the board. This happens often.  You don't have to read all pages to get a good idea, maybe just like the last 10 or 20.

 

If you want a short answer, it has to do with an estimated ~$50M debt net of cash after deal and 2 capitally intensive divisions left that have yet to prove they can turn a profit. 

 

Oh yeah, and also Mr. Market is sketchy.

 

Welcome.

 

 

 

 

Well, we could argue about how reasonable that assumption is, but I will let it drop.

 

Yes, obviously the company is not out of the woods, yet, with 2 money-losing divisions and lots of capital expenditures needed to double the size of the dissolving pulp part. But I am still surprised that the stock has not rallied more. Cotton and pulp prices are well up from their nadir, the Chinese are low on cotton supplies apparently and increasing import quotas, the conversion of the Thurso plant is almost complete, including the bio-mass cogen facility that is almost ready, and that has a 15-yr contract with Hydro-Quebec for its electricity (we have learned to appreciate a reliable buyer who will not change the terms of the contract!), LSQ can be stretched out a bit if need be, and now debt levels will be quite low as well, giving the company time the ability to survive even if there are further production delays or low commodity prices.

 

So it seems to me that the whole enterprise has been massively derisked, still has a hugely bigger upside than downside, but the market isn't giving the story much credit. Maybe because Dresden went for about the expected price, so there's no real change to the story. Or maybe it's just because it's a small story and not many people know about it. Or haven't got their heads around the fact that, if Dresden was reasonably priced, the remaining 2 divisions can not really have negative intrinsic value! Can the market really be that pessimistic about dissolving pulp?

 

Regards, dm

[jeffmori7]

Dartmonkey, welcome to the board.

 

Concerning Fortress, I think a lot of people agree with what are you saying, but it is now a "show me the money" time. Until then, the price will stay depressed as they keep burning cash. The time is over that the market will evaluate the business just by listening to Chad "dream maker " Wasilenkoff!

[Liberty]

Welcome to the board, Dartmonkey.

 

I think the market used to be over-optimistic about FTP, and now it's probably over-pessimistic. All good news will probably be discounted until there's a change in Mr. Market's psychology, which will probably happen after a few quarters of solid operations.

[OptsyEagle]

Sorry to ask what seems like an obvious question, but doesn't Fortress's current market cap of $150m seem a bit low, for a company that just sold one of its 3 divisions for $209 million?

 

OK, there will be some taxes to pay on the gain, but still. It seems like the market is basically saying that the two other divisions are completely worthless. True, they just sold the only part of their business that makes any money, but there's virtually no risk of them running out of money anymore, so if the dissolving pulp business is worth anything, the current price seems like a steal.

 

I agree, however, the $209 million you quote is subject to taxes.  One analyst believes it will be closer to $150 Million net of taxes and Dresden debt.  So with 15 million shares approx., we get the current market price of $10 per share, right there.  Now we need to acknowledge that Fortress Paper owes about $257 Million in debt, so you have to figure that the market is currently valuing the other two divisions at that level, whatever the net debt is (debt left after Dresdens debt is paid minus cash in bank right now). 

 

So each investor now has to decide if that is a proper valuation.  When the investor does this, it comes right back to the original question.  Will Fortress Paper meet its costs and production targets and where will dissolving pulp prices be when that happens?  A smaller sub question is whether Landqart will break even, continue to drain cash or be sold?

 

So good luck with all that.  Let me know what you come up with.

[FFHWatcher]

Question: How many months does it take Chad to spend $100M on a dissolving pulp mill? 

Question: With FTP being so insanely inexpensive, how many companies have stepped up to make an offer?

It is only worth what someone is willing to pay for it and no one is willing to pay much more than $10.  So, people are willing to pay for Dresden but are basically saying Thurso and LSQ are worth net $0 or perhaps a little less than $0?

[jose]

I'm sort of neutral on the Dresden sale myself.  Sure cash in hand is nice, but is it worth letting go of a high quality business for not a high price?  Yes is Chad's answer.

 

Also, FTP loses the tax advantage of a steady stream of Dresden income fully deducted against losses while the Thurso/Landquart sh*tshow sorts itself out.  Instead they get to pay tax 5x ebitda now.  Maybe this is a good year to fully bring on LSQ to the sh*tshow afterall and avoid as much of that Dresden tax as possible. Ha. I'm guessing on this; not sure they can deduct like that. Maybe not a big deal.

 

Anyways, FTP is highly leveraged now more than ever with the DP commodity cycle, and Mr Market will fluctuate accordingly.  If/when DP goes back north of 1500 then I'm sure Mr Market will react generously in the opposite direction.  Hopefully Chad has the patience to safely steer FTP to that day. I'm betting he will.

[OptsyEagle]

Has anyone noticed the decline in corporate costs reported in the last few quarterly reports.  I noticed it when I saw the Q4 results showing only $600K in corporate costs.  So I went back a few reports and this is what is listed for Corporate Costs:

 

Q1 2012 = $1.8M

Q2 2012 = $1.3M

Q3 2012 = $1.1M

Q4 2012 = $0.6M

 

For all of 2011 they reported $7.8Million in Corporate Costs. 

 

At first I thought perhaps is was a reduction in stock based compensation (God knows they don't deserve it), but in Q4 they have $630K reported for stock based compensation alone.

 

Does anyone know or can you think of why these costs are declining like they are.  Peter Vinall wasn't fired until 2013 and I doubt he would be classified as corporate costs.  I am just trying to get a handle on what they might be going forward.

[Liberty]

Has anyone noticed the decline in corporate costs reported in the last few quarterly reports.  I noticed it when I saw the Q4 results showing only $600K in corporate costs.  So I went back a few reports and this is what is listed for Corporate Costs:

 

Q1 2012 = $1.8M

Q2 2012 = $1.3M

Q3 2012 = $1.1M

Q4 2012 = $0.6M

 

For all of 2011 they reported $7.8Million in Corporate Costs. 

 

At first I thought perhaps is was a reduction in stock based compensation (God knows they don't deserve it), but in Q4 they have $630K reported for stock based compensation alone.

 

Does anyone know or can you think of why these costs are declining like they are.  Peter Vinall wasn't fired until 2013 and I doubt he would be classified as corporate costs.  I am just trying to get a handle on what they might be going forward.

 

Work on potential acquisitions going down maybe?

[OptsyEagle]

Could be it.  I don't know the exact numbers, but I would assume that Chad would earn close to $250K in a quarter.  Kurt probably $$80K to 100K.  Rent would be around $40 to $50K.  I am sure they must have at least one secretary running around there answering phones and booking a few trips to Europe or Quebec and possibly even a director's board meeting now and then. 

 

I imagine then that Q4 2012 was running at the bare minimum. 

[OptsyEagle]

I suppose this stuff going on in Cyprus doesn't make it easy for the Swiss Central Bank to keep their franc from rising.

 

http://news.nationalpost.com/2013/03/16/this-is-theft-pure-and-simple-cyprus-bail-out-slicing-average-depositors-savings-up-to-10/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NP_Top_Stories+%28National+Post+-+Top+Stories%29&utm_content=My+Yahoo

 

By the way.  How does a central bank stabilize a currency when people are flocking to it in droves.

[triedtestedand]

Sateri's 2012 results:

 

http://www.hkexnews.hk/listedco/listconews/sehk/2013/0315/LTN20130315278.pdf

 

- They have a new 200K ton China-located VSF plant (costing $550M) that is supposed to be operational by year-end 2013 ... which presumably should soak up a fair bit of the rayon-grade DP that they currently sell to 3rd/ parties (which was ~192K tons).

- All their DP sales are on spot market (which makes sense if they intend to redirect the output to their new VSF plant). In 2012 they were the largest rayon-grade DP importer into China.

- They just arranged a new $500M credit facility (replacing old one ... and adding extra capacity) ... which presumably is providing funding to finish up the DP plant.

- DP and VSF were about an equal 50:50 split on gross revenues (about $360M +/- each), but DP accounted for 70% of gross profit.

- VSF production was about ~170K tons.

- About 20% of their 432K tons of DP production (or ~100K tons) was of high-end DP.

 

[OptsyEagle]

NBSK pulp hit $900 per tonne in the US today.  A swing producer would need $990 per tonne for their dissolving pulp, since NBSK provides for about a 10% increase in production yield.  I imagine that the swing producers must be thinking about swinging their production back to NBSK, these days, when looking at these NBSK selling prices.

 

http://www.paperage.com/foex/pulp.html

[Liberty]

NBSK pulp hit $900 per tonne in the US today.  A swing producer would need $990 per tonne for their dissolving pulp, since NBSK provides for about a 10% increase in production yield.  I imagine that the swing producers must be thinking about swinging their production back to NBSK, these days, when looking at these NBSK selling prices.

 

http://www.paperage.com/foex/pulp.html

 

It could become a factor over time, though I think there must be a pretty high opportunity cost in switching from one to the other; the cost of the switch itself, the risk that something goes wrong during the conversion work, and the production time lost during the swing.

 

Is anyone here more familiar with these swing producers? Have they switched from one to the other often historically?