ASPS - Altisource

[Guest roark33]

This was filed today.  It is titled as lender presentation and the  8-k indicates that ASPS had a call with their lenders today. 

 

http://www.sec.gov/Archives/edgar/data/1462418/000110465915005696/a15-3376_1ex99d1.htm

 

This presentation looks like it is focused on staying within the debt covenants.  One covenant requires 50% cash flow to be paid towards debt if debt/ebitda rises above 3.5 to 1, and 25% cash flow to be paid to debt if debt/ebitda is over 2.75 to 1 (but under 3.5 to 1).  It is unclear in the 10-k if that is net debt/ebitda or just debt/ebitda.  Either way, I think the lenders probably don't want ASPS using all of their cash and/or cash flow to buy back shares if debt/ebitda is going to be elevated this year.

 

[ItsAValueTrap]

Highlights from the conference call

 

During January 2015, we repurchased $4 million of our common stock and did not repurchase any stock during February.

 

  Since our last investor call, we've continued to monitor the Ocwen-related news and have suspended our share repurchasing activity. We plan to monitor the environment and may at some point in the future consider repurchasing our stock and our debt. On our January investor call, we provided two scenarios to assist you in developing your perspective of our 2015 service revenue and earnings.

 

  While we're not planning to update these each quarter, we've included the scenarios and related assumptions in the presentation on slides 11 through 13. If we do not repurchase any additional shares in 2015 and use all of the remaining assumptions outlined in the slides, adjusted diluted earnings per share would be $5.81 at the midpoint.

 

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Hi, guys. Thanks for taking my questions. I want to understand, with respect to the buyback, what's changed from January 16 when you said you would consider the risks associated with -- but at that time still thought it was prudent to repurchase stock?

 

shepro:

  Ryan, since we had the investor call, there's a couple of notices came out related to -- related to HLSS. And while we think there's a very low likelihood that they will be successful in their claims that they have alleged, we just felt like from our perspective, until there's more clarity around the resolution of those issues, it makes more sense to build up our cash position to make sure we have enough cash to support the runway to accomplish our strategic initiatives. Pretty much that simple.

 

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Fred small, compass point:

  Okay. And then you mentioned in the sort of comments about the change in capital allocation plans that you might buy back the term loan in the future. Would you need an amendment to the term loan for that to happen?

 

A:

  Fred, we didn't say we would buy it back. We said we would consider repurchasing essentially some of the debt. No, we don't need an amendment to do that.

 

Fred small, compass point:

  Okay. Got it.

 

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Michael Fine / Carlson capital:

  Hi, guys. Wonder if you could just help us think, get some insight into how you're thinking about your capital structure. Some guys touched on the term loan and the share buybacks earlier on the call, but just -- is there anything you could tell us, you know, to help us figure out what the capital structure looks like in 12 months from now? I mean, it's not often that you find a company with such good cash flow characteristics with the term loan fitting at $0.80. And what would change your mind or kind of how are you guys approaching that, thinking about what to do with your excess capital?

 

A:

  I think today if you listened to the last call we had and today's call, really what we want to do is build up the cash to support, give us enough runway, or plenty of runway to support our longer-term growth initiatives. While there's some uncertainty and, you know, there's different pieces of news coming out almost daily related to the businesses, we think it's a good approach. Should something change and we get a lot more comfortable with the stability of the, of our customers, we'll revisit our capital allocation approach. And at that time, we would consider using some of our cash to potentially buy some of our debt back or also potentially to buy some of our shares back.

[jay21]

I kinda get not repurchasing shares, but debt is going to come due (or you have to refi)...I don't see why you wouldnt buy it back if its priced at the 80s?

[ItsAValueTrap]

I kinda get not repurchasing shares, but debt is going to come due (or you have to refi)...I don't see why you wouldnt buy it back if its priced at the 80s?

 

Yeah it's so frustrating!!!

[Guest roark33]

I think it makes perfect sense to preserve all the cash you have when you are basically going to have to re-invent the business over the next two years.  I know everyone dislikes my short bias, but it is kind of hard to get behind a stock when it is trading "at 4x eps" and the mgmt refuses to buyback shares.  Makes you wonder about those 2016 internal projections.

[scorpioncapital]

The calls to buy back shares makes no sense.

 

Imagine you own a company. You go severely into debt to buy back your stock at a valuation that is perhaps as high as 10x what it's worth today. In other words, you blew it. Now you're stuck with the debt which you have to pay foremost to avoid not just getting by but bankruptcy. Also your business is down dramatically and you can't count on income to pay the debt back as fast as you like.

 

Given this scenario, buying back more shares is highly imprudent - I'm not even sure you can do it. Already the banks have restrictions on the debt that say if your income before debt servicing is below a certain number, dividends and buybacks are restricted.

 

I believe there is a quote to the effect that when you've dug yourself into a hole, stop digging!

 

[ItsAValueTrap]

Does anybody know what this part of the 10-K means?

 

Our business is subject to regulation and oversight by federal, state and local governmental authorities. We periodically receive subpoenas, civil investigative demands or other requests for information from regulatory agencies in connection with their regulatory or investigative authority. We are currently responding to such inquiries from federal and state agencies relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.

page 80 of the 10-K 

http://www.sec.gov/Archives/edgar/data/1462418/000162828015001367/asps-12312014x10k.htm

[Josh4580]

The calls to buy back shares makes no sense.

 

Imagine you own a company. You go severely into debt to buy back your stock at a valuation that is perhaps as high as 10x what it's worth today. In other words, you blew it. Now you're stuck with the debt which you have to pay foremost to avoid not just getting by but bankruptcy. Also your business is down dramatically and you can't count on income to pay the debt back as fast as you like.

 

Given this scenario, buying back more shares is highly imprudent - I'm not even sure you can do it. Already the banks have restrictions on the debt that say if your income before debt servicing is below a certain number, dividends and buybacks are restricted.

 

I believe there is a quote to the effect that when you've dug yourself into a hole, stop digging!

 

This is exactly what is going on at Weight Watchers (WTW)!

[scorpioncapital]

Anybody think this is starting to look interesting.

 

According to their lender presentation (http://files.shareholder.com/downloads/ABEA-32801L/4115077810x0x806175/ae7834e1-83b4-41ae-b1c4-3142982e8787/Lender_Presentation_January_2015.pdf) , even if all GSE loans are sold from Ocwen, the non-GSE loans are going to make 800m in pretax income over 5 years. Tax rate is 6% so that's 750million or more than enough to pay back their loan and represents 2x the current market cap. Even if their estimate is off by 50%, they'd still make 375million.

[mcmaaaaath]

Anybody think this is starting to look interesting.

 

According to their lender presentation (http://files.shareholder.com/downloads/ABEA-32801L/4115077810x0x806175/ae7834e1-83b4-41ae-b1c4-3142982e8787/Lender_Presentation_January_2015.pdf) , even if all GSE loans are sold from Ocwen, the non-GSE loans are going to make 800m in pretax income over 5 years. Tax rate is 6% so that's 750million or more than enough to pay back their loan and represents 2x the current market cap. Even if their estimate is off by 50%, they'd still make 375million.

 

 

First of all, I do enjoy that they are giving basically all the assumptions in the five year forecast you mentioned. So props to them for that.

 

But besides the obvious risks to Altisource from the Ocwen situation, I have a couple questions about the numbers they lay out.

 

Two things stand out to me from slide 10 in that presentation you linked. First is the decline in delinquency rates. They are projecting 50 bps of declines in 2017,18, and 19. This doesn't appear to be consistent with historical precedent for Ocwen's business. See the attached picture, which IMO would indicate more like a 200bps annual decline. This is a big difference.

 

Second is the service revenue per delinquent loan. They project $1700, which is about what they took in for 2014.  This number is re-negotiated annually based on market rates. Is that number at risk given how high margins have historically been at ASPS, and given that Erbey is now longer in charge? And relatedly, is there a good reason why non-GSE delinquent loans generate 4x the revenues of a GSE delinquent loan?

 

Merely changing the annual decline in delinquency rate to 200bps lowers the total profit before tax over the 5 year period to $658m, with <$80m in the final year. If that is an appropriate adjustment, there is not a lot of cushion there relative to the $600m maturity.

[scorpioncapital]

True, although I did see someone mention on the conf. call that the debt was/is? currently trading at 80 cents on the dollar. If they could somehow put every excess dollar into that ASAP, that could help quite a bit.

[mcmaaaaath]

True, although I did see someone mention on the conf. call that the debt was/is? currently trading at 80 cents on the dollar. If they could somehow put every excess dollar into that ASAP, that could help quite a bit.

 

It is has been trading around 80c for the past month or so, yeah.

[Guest roark33]

Cooperman unloading stake. Just filed.

[stahleyp]

 

Didn't Cooperman also unload SD a bit after it tanked?

 

Whenever I think of him, I can't help but think of this:

 

http://archive.fortune.com/2007/08/07/markets/cooperman_market_analysis.fortune/index.htm

[scorpioncapital]

from thestreet...

 

"The call, while obviously encouraging to shareholders, was also memorable because it featured Cooperman asking Shepro,  "whether your testicles are bigger than your brains or your brains are bigger than your testicles."

 

He noted the company had spent $200 million to buy back shares when the stock was at $104, which Cooperman said was "obviously a colossal misallocation of capital." Cooperman said he wanted to be sure management had analyzed the buyback question issue more thoroughly this time even though he conceded a buyback looked like a "no-brainer."

 

As Altisource executives said they would commence the buyback as soon as their lawyers assured them they had made sufficient disclosures to do so, Cooperman said he felt sure that they had, and urged them to "find a law firm with some common sense," that would give them the go-ahead right away."

 

--

Now I wonder if Cooperman's testicles are bigger than his brains to give such poor advice. You have a distressed investment with a run-off client and a 600m debt pile. The last thing you want is to buy back stock, no matter how low the stock goes! What you want to do is cut all your extra expenses, be super efficient and funnel all the dollars into reducing that debt pile.

 

 

 

 

[jawn619]

from thestreet...

 

"The call, while obviously encouraging to shareholders, was also memorable because it featured Cooperman asking Shepro,  "whether your testicles are bigger than your brains or your brains are bigger than your testicles."

 

He noted the company had spent $200 million to buy back shares when the stock was at $104, which Cooperman said was "obviously a colossal misallocation of capital." Cooperman said he wanted to be sure management had analyzed the buyback question issue more thoroughly this time even though he conceded a buyback looked like a "no-brainer."

 

As Altisource executives said they would commence the buyback as soon as their lawyers assured them they had made sufficient disclosures to do so, Cooperman said he felt sure that they had, and urged them to "find a law firm with some common sense," that would give them the go-ahead right away."

 

--

Now I wonder if Cooperman's testicles are bigger than his brains to give such poor advice. You have a distressed investment with a run-off client and a 600m debt pile. The last thing you want is to buy back stock, no matter how low the stock goes! What you want to do is cut all your extra expenses, be super efficient and funnel all the dollars into reducing that debt pile.

 

Leon Cooperman's has no testicles, I mean look at his holdings. It's almost an index fund

 

http://www.dataroma.com/m/holdings.php?m=oa

[Liberty]

But he has brains. There are worst things than being an index, since so few people actually beat it.

 

If he had 4 positions and one of them was ASPS, I'm pretty sure he'd have had wished to have less testicles...

[Picasso]

Geez, how does Pooperman sell down here after accusing the CEO of not having testicles?  I am really tempted to buy on this alone.

[Guest roark33]

He still has more to sell, and the business can't be improving if OCN continues to unload MSRs at the rate it is.  They haven't bought back shares because they can do the math, they need the cash to pay down the debt....

 

 

 

 

 

[ItsAValueTrap]

And relatedly, is there a good reason why non-GSE delinquent loans generate 4x the revenues of a GSE delinquent loan?

 

Once a home is foreclosed, the GSEs take over the house.  So Ocwen isn't winterizing the home, cutting the grass, getting real estate brokerage fees, getting fees from Hubzu, etc. etc.

 

True, although I did see someone mention on the conf. call that the debt was/is? currently trading at 80 cents on the dollar. If they could somehow put every excess dollar into that ASAP, that could help quite a bit.

If I remember correctly, they mentioned on the conference call that they WEREN'T buying back debt even though they could.

[stahleyp]

But he has brains. There are worst things than being an index, since so few people actually beat it.

 

If he had 4 positions and one of them was ASPS, I'm pretty sure he'd have had wished to have less testicles...

 

Yep, there are worse things than being an index. Like the investors paying outrageous fees to be in the product that mimics an index. ;)

[Liberty]

But he has brains. There are worst things than being an index, since so few people actually beat it.

 

If he had 4 positions and one of them was ASPS, I'm pretty sure he'd have had wished to have less testicles...

 

Yep, there are worse things than being an index. Like the investors paying outrageous fees to be in the product that mimics an index. ;)

 

Hey, I'm not defending that. Just saying that not being hugely concentrated in ASPS turned out to be quite smart.

[philly value]

But he has brains. There are worst things than being an index, since so few people actually beat it.

 

If he had 4 positions and one of them was ASPS, I'm pretty sure he'd have had wished to have less testicles...

 

Yep, there are worse things than being an index. Like the investors paying outrageous fees to be in the product that mimics an index. ;)

 

In his defense Cooperman has done well over time, at least relative to S&P 500.

[Guest roark33]

One great lesson with the entire Erbey complex is how important it is to do your own research.  There were a lot of big names in those stocks and I spoke with a lot of people who seemed to debate the issue, but inevitably fell back on, well NB, Leon, (Baupost owns OCN) and a lot of other smart investors own it, so....

 

Everyone can be wrong...I would rather be wrong myself than relying on someone else and it turning out that they were wrong.

 

I am too lazy to look up his fund size, but ASPS was not a small position.  He added some recently, and owned over 10% of the company, so at least at 75m position. 

[ItsAValueTrap]

One great lesson with the entire Erbey complex is how important it is to do your own research.  There were a lot of big names in those stocks and I spoke with a lot of people who seemed to debate the issue, but inevitably fell back on, well NB, Leon, (Baupost owns OCN) and a lot of other smart investors own it, so....

 

In general, big names own almost every stock.  Except for small caps and OTC BB and pink sheets, institutions tend to own ~70% of the float of most stocks.  Saying that a big name owns X is kind of a dopey argument.

 

I think the big lesson (in hindsight) is that regulators {more specifically the NY DFS) would go after Ocwen.  And to a lesser degree, the regulatory action would cascade into other problems (ratings agency downgrades --> legal stuff where Ocwen can potentially lose MSRs and have to pay HLSS for lost excess servicing).  I don't know who saw that coming.