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

[phil_Buffett]

i like the high pessism the last days and weeks. bought a first Position and today again more shares

[obtuse_investor]

1) It's about half of IPO price now.

Can't argue with that. :)

 

 

2) The recent price action seems like a full-blown capitulation.

 

It does seem like that. There is moderately high volume relative to the average.

 

I'm not saying it's totally irrational; lots of negative stuff, of course. But even if they scrap LSQ, they have lots of cash on the balance sheet, thurso should keep getting better quarter by quarter, the tariffs should reduce supply and hopefully help DP price firm up, and landquart is finally starting to look like less of a black hole, maybe even sellable at some point (I wonder what the intangibles like patents and customer relationships would be worth to a 'strategic' buyer in the industry?).

 

In 2010, a similar business to Landqart received a bid at 10xEBITDA. See: http://www.valueinvestigator.com/en/valuefavourites/ftp.php

 

This article also talks about the "hidden assets" at Landqart, based on fire insurance policies.

 

[obtuse_investor]

i think it is irrational to think thurso will not be profitable. the drop is probably coz of cibc downgrade. they are the bullish one

 

You're right--- "Fortress Paper : CIBC cuts to sector underperform from sector outperformer"

 

I don't have access to the report or even the new target price from CIBC.

[obtuse_investor]

i like the high pessism the last days and weeks. bought a first Position and today again more shares

 

If it is worth anything, I just put in a bid to increase my position by 50%.

[phil_Buffett]

i like the high pessism the last days and weeks. bought a first Position and today again more shares

 

If it is worth anything, I just put in a bid to increase my position by 50%.

 

good to see that iam not alone with buying more at this depressed Prices  ;D

[finetrader]

I can understand the panic.

 

They have about 108M$ cash

 

but let say they operate at flat EBITDA for the next 3 years.

 

My understanding is that they will pay about :

 

12M$/year in interest

20M$/year in maintenance capex ( this is pure approximation from my part, please correct me if you think i'm wrong)

 

 

so that is about 96M$ cash outflow in three years

 

and the 40M$ debenture 6,5% comes due in dec. 2016

 

[alertmeipp]

I can understand the panic.

 

They have about 108M$ cash

 

but let say they operate at flat EBITDA for the next 3 years.

 

My understanding is that they will pay about :

 

12M$/year in interest

20M$/year in maintenance capex ( this is pure approximation from my part, please correct me if you think i'm wrong)

 

 

so that is about 96M$ cash outflow in three years

 

and the 40M$ debenture 6,5% comes due in dec. 2016

 

yup and our job is to see if that is a rational assumption

[Edward]

I can understand the panic.

 

They have about 108M$ cash

 

but let say they operate at flat EBITDA for the next 3 years.

 

My understanding is that they will pay about :

 

12M$/year in interest

20M$/year in maintenance capex ( this is pure approximation from my part, please correct me if you think i'm wrong)

 

 

so that is about 96M$ cash outflow in three years

 

and the 40M$ debenture 6,5% comes due in dec. 2016

Minimum capex is around 10M$ (according to management). Also DP prices are unlikely to remain at 900$ for 3 years straight.

 

Otherwise, sure.

 

Basically it's an interesting asymmetric bet, but it's not completely bulletproof.

[Liberty]

I can understand the panic.

 

They have about 108M$ cash

 

but let say they operate at flat EBITDA for the next 3 years.

 

My understanding is that they will pay about :

 

12M$/year in interest

20M$/year in maintenance capex ( this is pure approximation from my part, please correct me if you think i'm wrong)

 

 

so that is about 96M$ cash outflow in three years

 

and the 40M$ debenture 6,5% comes due in dec. 2016

Minimum capex is around 10M$ (according to management). Also DP prices are unlikely to remain at 900$ for 3 years straight.

 

Otherwise, sure.

 

Basically it's an interesting asymmetric bet, but it's not completely bulletproof.

 

Plus they should be able to buy back a lot of those debentures for ±60 cents on the dollar (maybe less if things keep going the way they've been), reducing the liability at maturity and reducing interest payments until then.

 

And if things turn and go really well, many of those debs could be converted to equity (not counting on that right now, though).

[triedtestedand]

IMHO, if board still believes NCIB should remain in place, and if securing "big blocks" is still an ambition, then the NCIB is a bandaid ... they should do like SSW did a couple of years ago, and issue a tender:

 

http://ir.seaspancorp.com/releasedetail.cfm?ReleaseID=632786

[alertmeipp]

Chads networth is getting a huge hit this year.  lost 90 percent from peak is painful, hope he learned the lesson and stop over promising.

 

 

 

 

 

 

 

 

 

[Parsad]

Chads networth is getting a huge hit this year.  lost 90 percent from peak is painful, hope he learned the lesson and stop over promising.

 

Not overpromising, but overleveraging!  I'm finally intrigued by this story after all these years.  Everything hinges on DP prices over the next 3 years.  I'm contemplating this one...very intrigued though.  Very asymmetric, but only if the thesis on DP prices works out.  What catalysts are there to drive DP prices...tariffs, demand, etc...but what could counter those catalysts...slowing economies, demand, increase in cotton supplies globally?  Cheers!

[alertmeipp]

the catalyst is dp price zooming up or down.

[Parsad]

the catalyst is dp price zooming up or down.

 

LOL!  Thanks for the analysis Alertmeipp.  Cheers!

[Liberty]

IMHO, if board still believes NCIB should remain in place, and if securing "big blocks" is still an ambition, then the NCIB is a bandaid ... they should do like SSW did a couple of years ago, and issue a tender:

 

http://ir.seaspancorp.com/releasedetail.cfm?ReleaseID=632786

 

I've actually asked them that. I'll let you know what they say.

 

Anyone familiar with TSX rules on such tenders? Could this be the reason?

[Parsad]

IMHO, if board still believes NCIB should remain in place, and if securing "big blocks" is still an ambition, then the NCIB is a bandaid ... they should do like SSW did a couple of years ago, and issue a tender:

 

http://ir.seaspancorp.com/releasedetail.cfm?ReleaseID=632786

 

I've actually asked them that. I'll let you know what they say.

 

Anyone familiar with TSX rules on such tenders? Could this be the reason?

 

A tender isn't going to fix things.  It will only overleverage an already overleveraged business.  Fortress has to show that they have the ability to pay the debt due in 2016 regardless of DP prices.  So stemming their cash burn rate or refinancing that debt would help more than a buyback.  Buybacks are only good if the institution survives and can finance itself to see it through to the buyback's end result...otherwise you just burn through cash that would be used to pay the debt.  Cheers! 

[alertmeipp]

cibcs downgrade is from 17.5 to 4.5, wt...still 8 percent upside. lol... they project 25 million lost nexy yr

[Liberty]

A tender isn't going to fix things.  It will only overleverage an already overleveraged business.  Fortress has to show that they have the ability to pay the debt due in 2016 regardless of DP prices.  So stemming their cash burn rate or refinancing that debt would help more than a buyback.  Buybacks are only good if the institution survives and can finance itself to see it through to the buyback's end result...otherwise you just burn through cash that would be used to pay the debt.  Cheers!

 

But if they buy back the debt at 60 cents, they save all interest payments (they make a lot less on their cash pile than they pay out in interest) plus the discount. Isn't that deleveraging?

 

Update: To be clear, I think if they do a tender, it should be for the debentures.

[BRK7]

IF they are going to deplete cash reserves to fund repurchases, I think it’d be much more prudent to repurchase the publicly traded debentures, which are now in the range of 60%-70% of par and trading at very high yields.  The IRR from such repurchases would be both known and attractive, and they are reducing future interest/principal obligations.  On the other hand, if they repurchase common shares, the net debt (debt in excess of cash reserves) of the company will only increase. 

[obtuse_investor]

Chads networth is getting a huge hit this year.  lost 90 percent from peak is painful, hope he learned the lesson and stop over promising.

 

Not overpromising, but overleveraging!  I'm finally intrigued by this story after all these years.  Everything hinges on DP prices over the next 3 years.  I'm contemplating this one...very intrigued though.  Very asymmetric, but only if the thesis on DP prices works out.  What catalysts are there to drive DP prices...tariffs, demand, etc...but what could counter those catalysts...slowing economies, demand, increase in cotton supplies globally?  Cheers!

 

I think Sanjeev finally being interested in Fortress is the catalyst we needed!

 

;-)

 

 

[triedtestedand]

I was thinking tender of the debs as focus ...

[Edward]

The face value of the 2016/2017 debt is 65M$. It makes sense to buy back most of it for 60-70 cents on the dollar.

 

Then they should have enough breathing room to get stuff on track and get Chad his retirement package in Cayman when he's done.

[triedtestedand]

Interesting to note in article below that Quebec gov't representatives are going w FTP to China to meet with stakeholders.  Maybe this is a Chinese shakedown.

 

 

http://www.lechoabitibien.ca/2013/11/20/possible-hausse-de-la-taxe-par-la-chine

 

 

English translation:

 

Lebel-SUR-QUÉVILLON -  As China threatens to impose a tax of more than 50% on the import of new companies producing dissolving pulp, Fortress Paper may be forced to cancel his new project in Lebel-sur Quévillon.

 

Dissolving pulp mills across Canada are already being forced to pay a tax on the export of their products in China, as is the case of Fortress Paper mill in Thurso, in Ottawa, which is taxed at 13%. However, for new projects, the fee could rise to 51% in February 2014.

 

"There is uncertainty when we speak, confessed Marco Veilleux, vice president of business development and strategic projects at Fortress Paper. The tax could potentially be 51%. If it applies, economically, there is no market. It is not only the draft Quévillon is in danger, the whole forest industry in Canada. There will be more projects. "

 

Variable tax

 

The tax on the export of forest products varies by location and country, Mr. Veilleux is strange. "At 51% we can not do a project, it does not make sense. The price of this market there is $ 1,000 per ton and it would add $ 510 in taxes, it does not make sense. "

 

Representatives of Fortress Paper therefore leave for China this week to meet with stakeholders, together with representatives of the Government of Quebec. "There are also people of Chinese trade that will come to Ottawa in two weeks, said Mr. Veilleux.

 

"Obviously, we are challenged it is believed that it goes against all the rules of the World Trade Organization, said the vice president. We do not even understand why it was 13% in Thurso and believes that Quévillon, it should be 0% because it is a plant that has never operated. "

 

Need federal

 

Mr. Veilleux considers that this protectionist measure was not relevant. "The minute a tariff barrier is erected against the free exchange of goods, it is not good for anyone. It puts constraints everywhere This to an effect in the market, "he said.

 

Pending clarification of the whole situation, Fortress Paper hopes to receive support from all levels of government. "It's going to take federal involvement," argued Mr. Veilleux.

[OptsyEagle]

It would be nice if someone from our Federal government stuck their nose in here.  This is purely protectionism and I would like to see us fire a shot back.  I know our gun is a lot smaller then China's but the symbolism is what matters.  Unfortuneately our leaders are democratic and are required to be re-elected and hence, I imagine they are hiding from this like the plague.  Spineless idiots.

 

As for the buybacks.  I know it would be nice to see 10% of the float disappear, optimally a day or so before DP prices start to rise, duties are removed, production levels improve and costs drop to a few $100 of dollars below market prices.  Since all of this coming together is unlikely, I am content to watch Fortress Paper save all their money and miss this so called buying opportunity.  We have no idea when the improvements in their fortunes will start and therefore we cannot be sure they will not need this cash. 

 

Back when they were issuing converts and many of us were happy that they used convertible debt financing with a convert price some 30% to 50% higher then the current stock price, as opposed to issuing more common stock directly, I knew, and made the odd statement to this effect, that this type of financing can come back and bite you later.  I have seen it many times.  If you go back and simulate the past by changing every CV issuance to issuing pure stock at the relevant market prices I will argue that our current stock would be trading much closer to $10 then $4, even with the extra shares that would be outstanding, due to the significantly reduced debt load (almost no recourse debt),the much higher cash balance and the reduced worry over debt maturities, etc.

 

Now, obviously I know that being able to go back and change past decisions can improve any outcome, and I don't blame management for making the decisions they made (although the last CV should have been equity for sure.  That was just greed on Chad's part), but I mention this because here we are again.  The buyback is a program that works great for money that is not needed.  I am just not positive that we have any of that.

[alertmeipp]

the catalyst is dp price zooming up or down.

 

LOL!  Thanks for the analysis Alertmeipp.  Cheers!

 

LOL, it's so cheap, you don't need any catalysts, just buy it. 8)