tombgrt Posted June 28, 2013 Share Posted June 28, 2013 Thanks guys. Guess we'll have to have some more patience. Link to comment Share on other sites More sharing options...
xtreeq Posted July 8, 2013 Share Posted July 8, 2013 Guys, First time poster, so I will try to be as brief as possible ;D 1. For ALSK, shouldn't we add off balance sheet operating leases roughly 83 million and underfunded pension plan of around 5.5 million to EV (using 2012 10K figures) ? If we do, EV/EBITDA is up a point to around 4.5. 2. I don't think the impact of V's arrival has been given a dollar figure so I will try to do a rough calculation - first, the company itself says that V comprised 15% of 2012 revenues. The company also states "On balance, we expect a modest decline in our total revenue for the twelve month period ended December 31, 2013" as their loss of market share should increase their subsidies a bit. In reality V has about 1/3 US market share so even if the company were to lose 15%*1/3=5% of its total revenues, we are looking at decreasing cash flows by roughly 367 mil * 5% or roughly 18 million. Let's assume subsidies take off 3 mil, that leaves about 15 million less cash flow. This figure may be lower initially because it will take V time to gain retail market share, but the hit should be immediate to the access segment as V's customers will no longer roam on ALSK's network. Does this 2. With respect to GNCMA I have some nagging questions that perhaps others might have some insight into: (a) Is it seriously enough overleveraged that it will be unable to complete the merger because GNCMA will be unable to find the additional 150 mil financing? The company stated clearly in the 2012 10K that this was a risk, but I am unsure how to treat this risk. (b) Can this overleveraging cause for concern derail FCC approval ? after all, it is one of three carriers in Alaska and people out there need coverage. © Can this be the case of biting off more than you can chew? GNCMA total debt & capital leases at 3/31/13 were 970 million (plus another 25 mil in other obligations) and this, if I understand correctly is before they have to cough up 100 mil this year plus give AWN a 50 million credit facility (see their 10K p. 38) - even assuming we subtract all their cash of roughly 24.5 mil at 12/31/12 and only assume using half of the credit facility this would put them at an EV to EBITDA of roughly (970+25+100+25-24)/(89+130) = 5 (I used 10K 2012 for income from operations and D&A) In addition, even if the company can get an additional 150 million in credit on a 5 year basis, and even if we assume it is only 50 bp higher than their 6.75% Notes (I think they would have to pay even more, but I honestly do not know how much more), their additional negative CF would be as follows (I assumed the loan began in July this year and an upfront maximum withdrawl for AWN's credit facility, figures in '000): Date Interest Principal Balance 2013 $5,247.32 $12,680.10 $137,319.90 2014 $9,077.52 $26,777.33 $110,542.56 2015 $7,070.33 $28,784.52 $81,758.05 2016 $4,912.69 $30,942.16 $50,815.89 2017 $2,593.32 $33,261.53 $17,554.36 2018 $373.06 $17,554.36 $0.00 So while the VarVarian is at the gate, GNCMA takes on another ~54 million in payments in the upcoming 18 months AND it gives ALSK precedence in AWN's 4 year revenue stream! Does this make GNCMA a potential short candidate?!? On a closing note (thanks if you;ve read this far!), in terms of competitive strategy, it seems to me that management of both of these relatively cocooned legacy operators have been sleeping on the job and just recycling ever increasing debt. Now that V is coming they realize that they need to team up, lest their cushy jobs vanish, but will their existing leverage kill them? Link to comment Share on other sites More sharing options...
Packer16 Posted July 9, 2013 Author Share Posted July 9, 2013 By my calculations, ALSKs EBITDA is $93 million with no synergies from AWN ($54 million non cell EBITDA plus 1/3rd of AWN's EBITDA @ $40 million). In addition, ALSK will receive $190 million over the next four years (which I applied to the debt). If we add in the synergies (mostly cost so highly realizable) the EBITDA is $103 million. In addition, VZ will have to have backhaul to its towers that only ALSK or GNCMA can provide. I did not quantify VZs entry because I removed all of ALSKs wireless EBITDA and replaced it with 1/3rd of AWNs. In essence $68.4 million of EBITDA is replaced by $40 million a $28.4 million drop, larger than your estimated $15 million decline. GNCMA has the financing already for the transaction and its leverage is only 3.7x times assuming a $100m payment. The financing was provided at 200 to 300 bp over LIBOR. The $50 million is a revolving LoC for AWN so its level will go up and down so it will be a pass through liability for GNCMA. The JV will only have the $50 million debt at a leverage level of 0.4x EBITDA. So this debt will be pretty secure. Given this, I think the FCC will have no problem with the financing of the deal. In addition, GNCMAs debt is trading at or above par so the credit markets do not think they are over levered. The coverage ratio is about 3.5x and GNCMA has a B+ credit rating. This type of business (triple-play communications) can support up to 5.0x EBITDA (look at Cablevision, Liberty Global and Charter). The other aspect of GNCMA is growing EBITDA which it has had over the past 5 and 10 years due in part to their triple-play network. Once of the only telecom players that has done so organically. In terms of cacooned management, I don't know where you got that impression from. The guy that runs GNCMA is a student of John Malone and started GNCMA from scratch to be the only triple-play in Alaska (a very lucrative market). ALSK has been that way but I think things have changed since the stopped the dividend and have focused on reducing debt. Packer Link to comment Share on other sites More sharing options...
xtreeq Posted July 12, 2013 Share Posted July 12, 2013 Packer Thanks for the reply and for the history lesson about GNCMA! I have never looked into telecom companies and I am digging into several of them - Portugal Telecom, Oi, as well as ALSK/GNCMA. I keep thinking about how important it is to have competent mgmt in a company and when I compare Bava and his team to the guys at ALSK, my gut feeling is that they've been coasting as the market is not as competitive. I probably allowed this impression to color my judgement about GNCMA, but I do like to stake out a thesis (which is why I wrote "it seems to me" - it makes me moe aware of my biases and I can then learn more through more research and helpful, knowledgeable people ;D With respect to ALSK, I am trying to understand your investment thesis and anticipated time horizon / catalyst, so please bear with me! If I understand correctly, you believe ALSK to be severely undervalued based on comparable companies and that you will hold it as share price rises closer to its IV. I also understand that telecom companies have large debt loads racked up in order to build and upgrade their networks, but I am wondering if ALSK can ever actually repay all of its debt ... Assuming your 103 mil EBITDA number, and even adding another 10-20 mil per year in saved interest expense (as debt is reduced by 290 mil via the money flowing from the AWN deal) and assuming that maintenance capex is 50 mil (i.e. as it was in 2011 and in 2012), FCFF will be rougly 60 mil to 70 mil going forward. Total liabilities of 634 + off BS leases of 83 mil - AWN profit of 290 mil - current assets of 86 mil = 341 mil [using latest 10Q data], so if the company were to focus solely on decreasing its debt, it would take it 5 to 6 years to clear its debt. Of course this is assuming that over time, V's entry will not adversely affect ALSK, and also that it will not require muh more capex. I think that both of these assumptions won't hold in reality and that at some point ALSK will need to invest in order t compete (very likely before the 5 or 6 years are up) and then it might not have additional assets to sell. Does any of this even matter in your experience, or should the company trade at an 8 to 10 EBITDA or FCFF multiple regardless once the debt load is lifted - have you seen this take plac before? Will the shares rebound significantly when the AWN deal is approved or due to other catalysts such as a takeover (if it is even possible in your opinion)? Thanks for your time and patience! PS It is more fun to learn and research these companies than to wait for the results of the CFA exam ... Link to comment Share on other sites More sharing options...
Packer16 Posted July 12, 2013 Author Share Posted July 12, 2013 I think the cap-ex for ALSK will be closer to $13 million for AWN (1/3rd of $40 million), it may be less as AWN may borrow this money with no recourse to ALSK, plus $25 million for the landline business which I think will be closer to $25 million ($55 million (history) - 50% of AWN Cap Ex plus synergies ($55 million). So the amount of cash flow to paydown the debt will be a minimum of $103 less $38 million or $65 million. Also remember the remaining pieces of ALSK will include declining legacy business and growing broadband business which will be helped by VZs entry because of the need for backhaul. The debt level of $341 on EBITDA of $103 is not that bad and does not include any back haul growth. The 5 to 6 years to pay back debt in this type of business is not uncommon. Telecoms are typically financed with debt due to their recurring revenue streams. I don't know when the share price will go up. AWN approval should help and acquisitions like LEAP S and TMUS should help in terms of comp pricing. Given the low share price, a re-pricing to even 5 to 6x EBITDA will increase the equity to $174m and $277 m. The LEAP deal was done at a 7.4 x EBITDA multiple, S at a 6.0x multiple and TMUS at a 6.7x multiple. Even the dieing RLECs (FTR, WIN, CTEL, CCB) trade at a 5 to 5.5x EBITDA multiples. Packer Packer Link to comment Share on other sites More sharing options...
sethatk Posted July 17, 2013 Share Posted July 17, 2013 Looks like AWN is approved! http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0717/FCC-13-96A1.txt Link to comment Share on other sites More sharing options...
Cunninghamew Posted July 17, 2013 Share Posted July 17, 2013 Looks like AWN is approved! http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0717/FCC-13-96A1.txt Seth, how did you get that so quickly? Did you just happen to google it or do you have some sort of system for scanning news? All I do is sign up for email updates that companies websites. Link to comment Share on other sites More sharing options...
xtreeq Posted July 17, 2013 Share Posted July 17, 2013 You can get real time updates as advised here: http://transition.fcc.gov/updates.html "Real-Time Updates Subscribers to FCC's RSS Feeds are provided with up-to-the-minute updates of documents as soon as they are publicly released by the FCC. These documents include News Releases, Chairman and Commissioners' speeches and statements, Public Notices, and all official Orders (e.g., Report and Order; Memorandum, Opinion, and Order; Notice of Proposed Rulemaking, etc.) RSS or "Really Simple Syndication" is an easy way for individuals to stay abreast of news and information important to them, while saving time by not having to search individual websites. The RSS Feed will automatically update content displayed in RSS-enabled browsers, readers and other programs that use common feed lists. The Recent Releases page provides the same information as the FCC Recent Releases RSS feed, but in the form of a traditional web page." Link to comment Share on other sites More sharing options...
sethatk Posted July 17, 2013 Share Posted July 17, 2013 I actually herad that it was out via a comment on SA, but I just went to the FCC website to verify. RSS feed is a great idea as well, I just have not set one up. I typically only invest in 5 or so stocks at a time, so I can managed to keep tabs manually. Link to comment Share on other sites More sharing options...
Cunninghamew Posted July 17, 2013 Share Posted July 17, 2013 I actually herad that it was out via a comment on SA, but I just went to the FCC website to verify. RSS feed is a great idea as well, I just have not set one up. I typically only invest in 5 or so stocks at a time, so I can managed to keep tabs manually. Like I said, I subscribe to auto updates, but usually what happens is I see a security I own move a lot and then I start search for news... back in the stoneage over here Link to comment Share on other sites More sharing options...
tombgrt Posted July 18, 2013 Share Posted July 18, 2013 Certainly good news. It's odd to see a small cap going up slowly as the news is being processed. I would buy some more if I had cash available. Link to comment Share on other sites More sharing options...
Olmsted Posted July 18, 2013 Share Posted July 18, 2013 Looks like AWN is approved! http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0717/FCC-13-96A1.txt Thanks for this message! You are responsible for me tripling my position yesterday before the news became fully baked in. I figured that, because there was no press release, I (thanks to you) might actually have had a pure information arbitrage for once. I had been biding my time while I researched it. Looks like the news is being priced in now. Also thanks to Packer for bringing this any many other interesting telecom ideas to the board. This is the first one I've dived into. Link to comment Share on other sites More sharing options...
xtreeq Posted July 18, 2013 Share Posted July 18, 2013 sethatk and Packer - let me second that ... I never would have looked into ALSK without Packer, nor would I have initiated a position yesterday around 1.91 after learning the AWN deal was approved - all thanks to you so if you are ever in my neck of the woods (hint - far away from the US), you're both invited for a nice cold one (or two, or more .... ;D ) Link to comment Share on other sites More sharing options...
Ross812 Posted July 18, 2013 Share Posted July 18, 2013 Bought yesterday at $1.93. Thanks for the alert that AWN had gone though! Link to comment Share on other sites More sharing options...
hyten1 Posted July 18, 2013 Share Posted July 18, 2013 man out of the loop last few days due to renovation thanks for packer, i tip toe into this position for a small position few weeks ago all due to packer Link to comment Share on other sites More sharing options...
blainehodder Posted July 18, 2013 Share Posted July 18, 2013 Im long too. Candy from a baby yesterday. Real inefficiency in the market. Link to comment Share on other sites More sharing options...
Cunninghamew Posted July 18, 2013 Share Posted July 18, 2013 Thanks Packer for the idea and Seth for the notification on here :D I have no clue how the stock will trade or what the whims of the market will be, but I would be curious to hear peoples thoughts on how this thing might play out now that the transaction has been derisked. 1. This is stupid, but we should see a presser from GCI and ALSK sometime soon... I don't know if this will be market moving given the info is already out, but who knows 2. After its closed ALSK gets $100mm net of expenses and uses that to pay down debt. We should get more clarity on the transaction and use of proceeds on the Aug 1 conference call (even though the co has said it plans to build cash/reduce debt)... I would imagine this is the next big catalyst 3. Then we have a lull period and just monitor how AWN/ALSK is holding up (market does its thing) 4. Then over the next 4 years you ALSK gets preference on the cash distributions... I am assuming those get paid annually to the extent ALSK holds it ends of the bargain on customer retention 5. Maybe dividend gets reissued Sorry this post turned out to be a lot more vague than I imagined after I typed it up Link to comment Share on other sites More sharing options...
xtreeq Posted July 19, 2013 Share Posted July 19, 2013 I don't think ALSK will use the whole initial $100 million to pay down debt, only part of it: "In fact, we'll use $65 million of the initial $100 million proceeds to pay down debt upon closing of the transaction." - Anand Vadapalli - President and CEO, 2012 Q3 earnings call "Mostly importantly, upon closing of AWN we'll use $55 million of the $100 million upfront proceeds for immediate debt pay downs of our term loan facility." - Wayne Graham - CFO, 2012 Q4 earnings call I'm a bit concerned that the number came down from Q3 to Q4, but I think how they use the remaining funds will be a good litmus test to whether management is prudently paying down debt or improving its competitive position in anticipation of Verizon's entry into the Alaskan market. Of course, if they only use 55% of the total 290 million due from the AWN transaction to pay off their debt, then debt will be closer to 500 million in 4 years rather than the 340 or so we discussed previously. Link to comment Share on other sites More sharing options...
Packer16 Posted July 19, 2013 Author Share Posted July 19, 2013 I thought I read somewhere that the FCC board has to approve the transaction. I think what we may be seeing on the FCC site is the recommendation by the staff. I believe the board is suppose to meet towards the end of the month. That may be why there is no presser until the board approves it. Packer Link to comment Share on other sites More sharing options...
xtreeq Posted July 19, 2013 Share Posted July 19, 2013 Here is the text of the decision made by Acting Chairwoman Clyburn and Commissioner Pai: http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0717/FCC-13-96A1.pdf To the best of my knowledge, the FCC is run by 5 Commissioners (currently there are only 3) and there is no Board ... Clyburn and Pai are Commissioners and the language at the end (see p. 52 of the pdf) seems to me to be final, so the silence from both companies is baffling. See here on wiki in Section 2: http://en.wikipedia.org/wiki/Federal_Communications_Commission Also, the Alaska Journal of Commerce article from yesterday does not mention need for further approval: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/Breaking-News-2013/FCC-approves-Alaska-Wireless-Network/ However, in the article the reporter states: "According to information provided about the infrastructure merger earlier in the process, the telecoms have 120 days to secure approval from other entities. " Perhaps these mysterious 120 days are the reason nothing has been announced?!? Anyone else care to shed light on the situation? Thanks Link to comment Share on other sites More sharing options...
Packer16 Posted July 19, 2013 Author Share Posted July 19, 2013 You are correct. Thx. Packer Link to comment Share on other sites More sharing options...
xtreeq Posted July 19, 2013 Share Posted July 19, 2013 You're welcome Packer -glad to be of help! Link to comment Share on other sites More sharing options...
xtreeq Posted July 19, 2013 Share Posted July 19, 2013 I believe the neccessary approvals are related to lenders and the union - see here in ALSK's Q&A about the AWN deal at the very end of the document: http://www.alsk.com/assets/AWN%20QA%20External%20ACS%20FINAL.pdf Link to comment Share on other sites More sharing options...
tombgrt Posted July 19, 2013 Share Posted July 19, 2013 man out of the loop last few days due to renovation thanks for packer, i tip toe into this position for a small position few weeks ago all due to packer Although he doesn't post here anymore, imo Harry Long deserves a big thank you as well. When two investors with a great track record in telecoms (remember the SURW thread with Harry Long? :o) individually post a bullish case for the same company, you have to dig deeper! Although it's really early, thanks to both of you. Link to comment Share on other sites More sharing options...
tombgrt Posted July 19, 2013 Share Posted July 19, 2013 http://seekingalpha.com/article/1555612-fcc-approval-of-merger-of-wireless-assets-is-a-game-changer-for-alaska-communications From HL. Link to comment Share on other sites More sharing options...
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