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

[sculpin]

Looks like a group of FTP debenture holders has banded together.

 

While equity holders await a turnaround of the money-losing pulp segment, debenture holders are finally seeing some steps in the right direction from the corporate head office. Management stated on the last call that they would not allocate further corporate cash to pulp, and on June 2nd, managerial layoffs in this segment were announced. We continue to believe this situation will look messy as Fortress negotiates a possible restructuring of the (non-recourse to the parent) secured pulp segment debt. In the meantime, these debentures continue to pay interest, and we believe principal will be repaid in full at maturity. We take some comfort that the recently formed ad-hoc group of debenture holders (of which we are a part) will put some added pressure on management and we take even greater comfort in the 24% yield to maturity.

 

http://media.wix.com/ugd/eb9434_03482704dca04d1fba4832543f9017a7.pdf

 

 

[OptsyEagle]

and we take even greater comfort in the 24% yield to maturity.

 

anyone else feeling warm and fuzzy here?

[FFHWatcher]

and we take even greater comfort in the 24% yield to maturity.

 

anyone else feeling warm and fuzzy here?

 

I lost my warm and fuzzy after I lost 80% of my investment.  Thank god I didn't double, triple down.  You have been warm and fuzzy since $40/share.  Perhaps it's time to stop?

[SharperDingaan]

A 24% YTM paid in stock, or a maturity extension .... is not quite the same thing.

 

FTP has a growing debt/equity problem. Assume no net new cash, & a target industry average debt/equity ratio, & its not hard to determine how much equity they are going to have to give up. Add in the possibility of repurchaseable long dated warrants, to minimize dilution, & the strike will need to be very deep in the money.

 

Just to throw something out there  ;)

X warrants per $1000 bond, enabling the holder to purchase Y shares of FTP at a price of Z, upon expiry in N years. Warrants may be repurchased upon expiry, at the option of FTP, at a price of B. Y may well be 30%+ of FTP, Z may be <40c, & B may well reflect compounding @ >24%/yr. If they do not like the structure, bring cash to the table instead.

 

We're pretty sure the negotiating group can more than handle it.

 

SD

 

 

 

 

 

[sculpin]

Really at this point in time the key to this story is not the parent co debentures but the outcome of negotiations on the IQ debt. Get this resolved in a manner that allows time for Thurso to become CF positive over the next 18 months and then the FTP.DB gets paid out at par in Dec 2016 with cash on hand and a possible sale of Landquart. CIBC theorized on the possible outcome of IQ talks in the Spring below.

 

Debt Restructuring At Thurso Also A Likely Event

 

We believe that FTP management is in ongoing negotiations with Investment Quebec (IQ) with regard to the $105 million secured term loan for the Thurso mill.

 

This loan was initially scheduled to commence principal amortization in 2014 with quarterly principal payments of $4 million. These quarterly payments have been waived for Q1/2014 and Q2/2014. We further believe that FTP is negotiating with IQ to convert either a substantial part or all of the term debt at Thurso into preferred shares or a zero coupon bond structure that would preserve cash resources over the next 4-5 years.

 

Fortress clearly needs to defer scheduled principle and interest payments on its senior debt until higher and more sustainable levels of operating cash flow are being generated by its two main operating assets (Thurso and Landqart).

While timing on these negotiations can be hard to determine, we expect to hear further on this front with the publication of Q2/2014 results in late July or early August/2014.

[BRK7]

http://www.nonwovens.com/nonwovens/news/RISI-VIEWPOINT-Chinese-dissolving-pulp-anti-dumping-duties-pushing-on-a-string-1554.html

 

[triedtestedand]

Nanotech has reached the $9M needed to close Fortress Optical:

 

http://nanosecurity.ca/nanotech-completes-9-3-million-financing-fortress-optical-acquisition-set-to-close/

 

[lessthaniv]

Canada has launched a complaint today with the WTO on the anti dumping duty ... Hence the press release from FTP today;

 

http://www.news1130.com/2014/10/15/canada-files-wto-complaint-against-chinese-dissolving-pulp-duties/

 

Tembec also issued a similar release today:

 

http://www.newswire.ca/en/story/1428560/tembec-requests-federal-government-action-to-resolve-dispute-with-china

 

FPAC Comments:

 

http://www.fpac.ca/index.php/en/press-releases-full/forest-industry-calls-on-government-to-defend-against-chinese-trade-action

 

 

 

[triedtestedand]

<IV ... I'll take your 3 links ... and raise you one:

 

a) Canada has not launched a complaint ... they've requested consultations ;-)

 

    http://www.china.org.cn/world/Off_the_Wire/2014-10/16/content_33776552.htm

 

b) Interesting, if dated, article on the subject:

 

    http://www.wti.org/fileadmin/user_upload/nccr-trade.ch/downloads/TIE_W10_Aaronson.pdf

 

c) Belarus getting funding by Chinese banks for (rayon/bleached) pulp plants:

 

    http://www.tfreview.com/news/deals/belarusbank-and-china-eximbank-sign-pulp-project-finance-agreement

 

d) Quebec premier off to Quebec on trade mission at the end of the month (... with rayon pulp on his mind?)

 

    http://montreal.ctvnews.ca/philippe-couillard-to-lead-first-trade-mission-to-china-in-october-1.1957607

[lessthaniv]

It is a complaint (not that it matters) but under WTO rules, the first step is the consultation. If China doesn't abide, the complaint continues with the next steps...

 

The following link is a good guide on what the process is from initial complaint to final determination.

 

http://en.m.wikipedia.org/wiki/Dispute_settlement_in_the_World_Trade_Organization

 

The Aaronson article was a good read. Thx for that.

[muscleman]

A 24% YTM paid in stock, or a maturity extension .... is not quite the same thing.

 

FTP has a growing debt/equity problem. Assume no net new cash, & a target industry average debt/equity ratio, & its not hard to determine how much equity they are going to have to give up. Add in the possibility of repurchaseable long dated warrants, to minimize dilution, & the strike will need to be very deep in the money.

 

Just to throw something out there  ;)

X warrants per $1000 bond, enabling the holder to purchase Y shares of FTP at a price of Z, upon expiry in N years. Warrants may be repurchased upon expiry, at the option of FTP, at a price of B. Y may well be 30%+ of FTP, Z may be <40c, & B may well reflect compounding @ >24%/yr. If they do not like the structure, bring cash to the table instead.

 

We're pretty sure the negotiating group can more than handle it.

 

SD

 

Yeah. That's true. I am a us investor and from IB, I cannot find the FTP debenture symbol. Is this not allowed to be bought by us investors?

What's the price that you think could bring sufficient MoS for this debt?

[misterkrusty]

a US investor can't buy these debentures thru IB.  you can buy them thru Schwab.  Fidelity and E-Trade could probably get them for you as well.  if you're a professional with a prime brokerage account, you can buy these thru GMP Securities in NYC, as well as thru all the major Canadian brokers (Cannacord, et al)

[muscleman]

a US investor can't buy these debentures thru IB.  you can buy them thru Schwab.  Fidelity and E-Trade could probably get them for you as well.  if you're a professional with a prime brokerage account, you can buy these thru GMP Securities in NYC, as well as thru all the major Canadian brokers (Cannacord, et al)

 

Thank you! I thought IB always have more product offerings than Fidelity and Schwab. Looks like I am wrong. ::)

[misterkrusty]

that's what I had thought as well.  but for the securities that IB does let you trade, IB is way cheaper ... and easier to place the trade when it comes to most stocks traded outside of the US and Canada.  Thus I never got rid of my Schwab account despite transferring most of my $$ to IB

[sculpin]

Q3 from Snyder Brown...

 

http://cdn1.valuewalk.com/wp-content/uploads/2014/10/SBC-Q3-LP-Letter-.pdf

 

 

The majority of our mark-to-market losses (changes in value due to the fluctuation in price of an investment

as opposed to taking an actual permanent loss by selling a security) in the quarter were caused by our

investment in Fortress Paper Debentures.

 

We wrote to you about this investment – which is our largest position by some margin – in our second

quarter letter to investors. We continue to believe this fixed-income investment will pay off in full at

maturity, returning nearly double our current investment over the next two years regardless of what

direction the stock market takes. This company has cash and inventories of $88 million, which is more

than enough to ensure that the entire debenture issue we are invested in, with a face value of just $37 million,

can be paid in full in 2016. In addition to these resources, Fortress Paper generated an additional $13 million in proceeds during the third quarter by selling an unprofitable, non-core division.

 

All of this makes

us more excited to own this fixed income security as our largest and safest investment, however the market

for “orphan” securities of this type is often inefficient and the price of these debentures actually fell over

the course of the third quarter. This was responsible for the majority of our negative performance, however,

we are in no way concerned about the ultimate successful outcome of this investment. As opposed to an

equity investment, where we would eventually need to market to agree with our assessment of the value of

a security to make money, this position will be self-liquidating by the end of 2016.

[TwoCitiesCapital]

Q3 from Snyder Brown...

 

http://cdn1.valuewalk.com/wp-content/uploads/2014/10/SBC-Q3-LP-Letter-.pdf

 

 

The majority of our mark-to-market losses (changes in value due to the fluctuation in price of an investment

as opposed to taking an actual permanent loss by selling a security) in the quarter were caused by our

investment in Fortress Paper Debentures.

 

We wrote to you about this investment – which is our largest position by some margin – in our second

quarter letter to investors. We continue to believe this fixed-income investment will pay off in full at

maturity, returning nearly double our current investment over the next two years regardless of what

direction the stock market takes. This company has cash and inventories of $88 million, which is more

than enough to ensure that the entire debenture issue we are invested in, with a face value of just $37 million,

can be paid in full in 2016. In addition to these resources, Fortress Paper generated an additional $13 million in proceeds during the third quarter by selling an unprofitable, non-core division.

 

All of this makes

us more excited to own this fixed income security as our largest and safest investment, however the market

for “orphan” securities of this type is often inefficient and the price of these debentures actually fell over

the course of the third quarter. This was responsible for the majority of our negative performance, however,

we are in no way concerned about the ultimate successful outcome of this investment. As opposed to an

equity investment, where we would eventually need to market to agree with our assessment of the value of

a security to make money, this position will be self-liquidating by the end of 2016.

 

I've actually been meaning to look into these - glad to see they've only gotten cheaper. This would be my first foray into bonds and I have a few questions. SBC claims that the secured debt of the company is only recourse to the Canadian pulp subsidiary and the parent co can walk away from it.

1) How does one locate the bond indentures to validate

2) How likely is it that Fortress simply walks away if they haven't already?

3) How does one identify, and locate, outstanding secured and unsecured debt to get a handle on remaining liabilities outside of pulp unit.

4)Has there ever been a situation where a company misses a near term, unsecured coupon/maturity in order to make a coupon/maturity payment on some other bond at a later date? I'm pretty comfortable if this is the nearest term liability, just trying to figure out if that comfort is warranted.

 

 

[bizaro86]

Search for Fortress Paper at Sedar.com. There is a material change report dated Feb 10th 2012 which has the details, but no indenture was ever filed as far as I can tell as the money was borrowed from a gov't agency not the bond market. Also, their most recent financials note that the secured debt is secured by the dissolving pulp assets (See Note 6, Q2 interim financials).

 

All that being said, it seems like this business burned $20mm of cash in the first 6 months of the year. They only have ~40mm on the balance sheet, plus a bit from the recent asset sale, still not enough to bridge them to 2016 and pay off the first debenture unless (one of) the operating businesses turns around.

 

If I'm missing something I'd love to be informed, as this is exactly the type of security I love. However, I don't see a margin of safety here...

[lessthaniv]

bizaro86,

 

the cashburn from Q4/13 to Q1/14 was significant. Q1/14 to Q2/14 was improved. Also, Sept/13 inventories we about $43M. That swole (lots of finished goods) to $63M by year end. That has to do with the tariffs and not selling into China. It remains to be seen if they can liquidate this favorable but my point being, there is some more cash in finished goods. Plus the recent sale of Optical.  I don't expect the burn rate for the first half to reflect the second half.

[bizaro86]

bizaro86,

 

the cashburn from Q4/13 to Q1/14 was significant. Q1/14 to Q2/14 was improved. Also, Sept/13 inventories we about $43M. That swole (lots of finished goods) to $63M by year end. That has to do with the tariffs and not selling into China. It remains to be seen if they can liquidate this favorable but my point being, there is some more cash in finished goods. Plus the recent sale of Optical.  I don't expect the burn rate for the first half to reflect the second half.

 

Do you have a feel for what you estimate burn rate to be for the second half of 2014? Knowing how much cash they'll burn between now and when the debentures come due in 2016 is key, imo. I don't like counting the finished goods as cash, because they're most likely held in the dissolving pulp subsidiary, which has the huge secured debt pile in front of the debentures.

[lessthaniv]

At this point, I'm not putting a number on it because its just a guessing game. They've talked about their vision of being EBITDA breakeven on the last call but their track record to date on this project has not been good. EBITDA breakeven still doesn't limit the cash burn though, as you know. So, Chad also needs to successfully renegotiate the terms of the IQ loan as he continues to rein in operational expenses. I'm looking for development on those two things. Having said that, I also think it's important to take a balanced look. While this conversion project has been anything but smooth, for me, the long term dynamics of the textile markets have not changed. ("Cellulose Gap"). And while critics point to Chad's misguided conversion timelines, he's also done lots of good things...

 

This one might work out in the end in a similar fashion to FFH's experience with International Coal.

 

 

 

[triedtestedand]

http://www.cheknews.ca/port-alice-mill-shut-two-months/

 

Makes a mockery of MOFCOM's munificence towards Port Alice's Chinese owners ... truth being stranger than fiction.

[OptsyEagle]

I have said quite a few times before, unless DP prices rise above $1,250 per tonne within the next 18 months, everyone is going to lose their money.  The Quebec government will lose the most, followed by a 100% loss by the common shareholders and pretty close to that by the convertible debenture holders. 

 

Well the CV holders may get all the common shares and maybe end up with Landqart, but it is highly unlikely that there will be any cash left.  Most of it will go to maintain operations and I would imagine Chad is hard at work trying to figure out a way to justify a big bonus.  He has until the end of this year, in my opinion, to grab as much cash as he can. He knows his shares are worthless, so it will be interesting to see what he does.

 

Anyway, the Chinese stole this business and our government could care less.

[triedtestedand]

http://fortresspaper.com/images/pdfs/releases/NR.Corporate%20Update%20Oct%2029%202014.pdf

 

Real quantifiable production #'s ... first time ever ... for an entire quarter ... C$757/ADMT (or USD$681/ADMT based on a 90 cent dollar) ... presume this is before shipping+sales commission costs.

 

And deferral/agreement-in-principle r.e. IQ

 

OK ... there's crack in a gear-box associated with the cogen turbine ...

 

 

[lessthaniv]

they must read the board!  ;D

[sculpin]

FORTRESS PAPER TO RELEASE THIRD QUARTER 2014 EARNINGS

 

Shares issued 14,631,871

FTP Close 2014-10-22 C$ 2.10

 

 

Fortress Paper Ltd. intends to release its third quarter financial results for the period ended Sept. 30, 2014, after the close of the market on Thursday, Nov. 13, 2014. In connection with the release of its results, Fortress Paper will host a conference call on Friday, Nov. 14, 2014, at 11:30 a.m. PST, to discuss the financial results and the corporation's operations.

 

To participate in the conference call, please dial one of the following numbers:

 

Dial-in numbers:  604-681-8564 Vancouver; 403-532-5601 Calgary or international; 780-429-5820 Edmonton; 416-623-0333 Toronto; 613-212-0171 Ottawa; 514-687-4017 Montreal

 

Toll-free dial-in number:  1-855-353-9183 from Canada and the United States

 

Participant passcode:  15086 followed by the pound key

 

Conference reference No.:  1167098 followed by the pound key

 

A replay of the conference call will be available until midnight, Dec. 14, 2014. To access the replay, listeners may dial 1-855-201-2300 from Canada or the U.S. or dial 403-255-0697 from local Calgary or international. The conference reference number is 1167098 followed by the pound key and the participant passcode to access the replay is 15086 followed by the pound key.