ZINC - Horsehead Holding Corp

[str8shot]

New 8-K out today. Here's an excerpt:

 

As previously disclosed, the Company is exercising a 30-day grace period, which expires on February 3, 2016, with respect to a $1.9 million interest payment that was due and payable on January 4, 2016 on its 3.80% Convertible Senior Notes due 2017. The Company has not made a decision at this time as to whether or not such interest payment will be made before the expiration of the grace period.

 

They said they intended to pay before. I guess they are changing their mind.

 

Also, S&P downgraded them to SD. Statement from them:

 

"Given our view of the company's debt level as unsustainable, and ongoing restructuring discussions, we do not expect a payment to be made within the grace period. In accordance with our criteria, we are lowering the corporate credit rating to 'SD'," said Standard & Poor's credit analyst Ryan Gilmore.

 

I'm assuming the decision to pay is dependent on whether they secure additional financing (presumably in the $100-150M range) to bridge the liquidity gap for the next year plus. And that they'll just file BK if they can't get the bridge financing, in which case it wouldn't make sense to make the $1.9M interest payment.

 

Do you agree?

[SnarkyPuppy]

Would it not be in the common shareholders best interest to utilize the ATM and severely dilute the stock rather than hand over the company to the debt holders in entirety? 

 

Is the board breaching its fiduciary duty here?

[str8shot]

Would it not be in the common shareholders best interest to utilize the ATM and severely dilute the stock rather than hand over the company to the debt holders in entirety? 

 

Is the board breaching its fiduciary duty here?

 

The uncertainty in the global zinc commodity market is a major cloud. The ATM approach is not viable at this stage - the demand is simply not there. In addition, Pabrai wrote in his Jan 15 letter that they need AT LEAST $100M to bridge 2016, and if the commodity market crashed further that likely wouldn't get the job done.

 

The way I see it is that the only hail mary option is securing an investor/group willing to put in $150M convertible to a huge equity stake - which would provide some buffer. For that to open the existing debt holders need to agree to let the new guy to be no 1 in line should they eventually file anyway.

[walt373]

How would secured creditors benefit from that? It seems a lot more feasible to just have the new investor come in after they file.

[str8shot]

How would secured creditors benefit from that? It seems a lot more feasible to just have the new investor come in after they file.

 

The benefit to the secured creditors would be that debt payments due to them would be paid in the coming year and perhaps with a kicker, and they wouldn't have to deal with restructuring and take ownership of assets and potentially only get .50-.60 on the dollar for what they are owed, and the bridge financing would likely preclude a future bankruptcy filing, laying the groundwork for favorable refinancing terms when the debt comes due in mid 2017.

 

I've got in mind the Liberty bailout of Sirius in 2009 as a reference point, though admittedly there is greater uncertainty around Horsehead's business prospects given the uncertainty around the ramp-up and the commodity markets as a whole.

 

I'm not suggesting this is a likely scenario, but I think it is a faint possibility. I would love to hear from others with deeper knowledge of these distressed situations.

[cmlber]

Looks like Pabrai is exiting his ZINC position this week.

 

http://www.sec.gov/Archives/edgar/data/1385544/000154692716000326/xslF345X03/pabraizincform4012116.xml

[Patmo]

If you want a better risk/reward opportunity related to zinc, Teck Resources could be up your alley

[Eye4Valu]

Odd that the CFO purchased shares in November. Didn't see this coming?

 

SCHERICH ROBERT D VP & CFO 2015-11-11 Buy 10,000 $2.41

 

 

[LC]

Odd that the CFO purchased shares in November. Didn't see this coming?

 

SCHERICH ROBERT D VP & CFO 2015-11-11 Buy 10,000 $2.41

 

I don't trust insider buys anymore unless they are large relative to the insider's salary (or cumulative salary over however long we have history for).

 

SCHERICH ROBERT D:

2014 - 776,676

2013 - 817,904

2012 - 765,595

 

Now, about 40% of those #s are equity compensation. But even backing that out, $20K of purchases in the light of $1.2MM cumulative comp over those years isn't super-high conviction IMHO.

 

Also, the logic falls apart if management are poor at capital allocation. In general, management authorizes buybacks at (usually) the worst times. In the case of ZINC, management totally botched building this factory and communicating with shareholders. So why do we assume they are brilliant or inspired in their personal account?

 

"there are many reasons for insiders to sell but only one reason for them to buy" Here's a few more reasons: insiders are irrational, fraudulent, or plain dumb.

[Eye4Valu]

good points

[awilkinson]

Whats everyone doing? As I see it, options are:

 

1. Hold tight and ride it out

2. Sell out

3. Sell and buy bonds

4. Sell and buy cheap calls

 

I bought a big chunk of ZINC and have been sitting on it watching from the sidelines and groaning. Seeing Pabrai start to liquidate is certainly discouraging...

[walt373]

I did #4. I didn't start with a long position though.

[Guest notorious546]

pabrai selling. towel thrown in.

 

http://www.sec.gov/Archives/edgar/data/1385544/000154692716000326/xslF345X03/pabraizincform4012116.xml

 

[Guest neiljgsingh]

pabrai selling. towel thrown in.

 

http://www.sec.gov/Archives/edgar/data/1385544/000154692716000326/xslF345X03/pabraizincform4012116.xml

 

Sorry this isn't strictly relevant, but is there any way to get alerts for these SEC updates? Or did you just look through a bunch of recent bulk data and see Dalal?

[Guest roark33]

this is a free service....

 

http://conferencecalltranscripts.org

 

 

[oddballstocks]

pabrai selling. towel thrown in.

 

http://www.sec.gov/Archives/edgar/data/1385544/000154692716000326/xslF345X03/pabraizincform4012116.xml

 

Sorry this isn't strictly relevant, but is there any way to get alerts for these SEC updates? Or did you just look through a bunch of recent bulk data and see Dalal?

 

SEC has an RSS feed you can subscribe to.  You can create real-time alerts on there too.  A lot of ways on EDGAR to get this with a very small amount of work.

[luck]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check. 

[walt373]

Horsehead Holding Corp. (NASDAQ: ZINC) today announced that it is temporarily idling its Mooresboro, North Carolina zinc production facility. The Company stated that the decision to temporarily idle the facility is the result of many factors, including a depressed zinc price which recently has languished near its seven year low and the Company’s current liquidity situation. A small workforce will be retained to manage the facility during this period.

 

http://www.businesswire.com/news/home/20160122005920/en/Horsehead-Temporarily-Idle-Mooresboro-Facility

[OracleofCarolina]

and, it's a wrap. Go back to start, do not pass go.

 

Horsehead to Temporarily Idle Mooresboro Facility

 

PITTSBURGH--(BUSINESS WIRE)--January 22, 2016--Horsehead Holding Corp. (NASDAQ: ZINC) today announced that it is temporarily idling its Mooresboro, North Carolina zinc production facility. The Company stated that the decision to temporarily idle the facility is the result of many factors, including a depressed zinc price which recently has languished near its seven year low and the Company’s current liquidity situation. A small workforce will be retained to manage the facility during this period.

 

[randomep]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

 

[AzCactus]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

+100

[Guest wellmont]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

pabrai selling. towel thrown in.

 

http://www.sec.gov/Archives/edgar/data/1385544/000154692716000326/xslF345X03/pabraizincform4012116.xml

 

 

i am sure he prefers to call it intelligent tax planning...

[luck]

yeah, the bottom line is pabrai became a bit overconfident as he started doubling down until the cows came home.  he once had a rule for capping exposure at 10% & then got rid of the rule.  now he's going back to an even smaller allocation rule after this debacle.  i imagine after 2013 with fiat, gm, etc. hitting big, it all got to his head a little bit. 

 

i believe with fcau, race, goog, gm warrants, he is sitting on a decent portfolio going forward & i am sincerely hoping that all his shareholders make their way out of this.  so far, the only bright side is the tax loss to offset gains this year.

 

 

[Parsad]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

And an analyst won't mess up?  I've read a lot of dumb things from a lot of analysts.  The best is when lousy portfolio managers decide to become analysts, or when bad analysts decide to become portfolio managers. 

 

Pabrai had more time and no analyst when he bought Delta Financial in 2007...the idea was wrong, not anything else.  Einhorn has a ton of analysts and he still bought and sat on the board of New Century.  Concentrated positions in good ideas is what made these fund managers, and that is part of the risk of investing in a concentrated portfolio...there will be volatility. 

 

People screw up and adding an analyst is like adding a sixth toe, because you think the other five toes are too busy!  We have one brain and one penis...adding more of either doesn't necessarily equate to being smarter or a better lover! :)  Cheers!

 

 

[ERICOPOLY]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

And an analyst won't mess up?  I've read a lot of dumb things from a lot of analysts.  The best is when lousy portfolio managers decide to become analysts, or when bad analysts decide to become portfolio managers. 

 

Pabrai had more time and no analyst when he bought Delta Financial in 2007...the idea was wrong, not anything else.  Einhorn has a ton of analysts and he still bought and sat on the board of New Century.  Concentrated positions in good ideas is what made these fund managers, and that is part of the risk of investing in a concentrated portfolio...there will be volatility. 

 

People screw up and adding an analyst is like adding a sixth toe, because you think the other five toes are too busy!  We have one brain and one penis...adding more of either doesn't necessarily equate to being smarter or a better lover! :)  Cheers!

 

 

 

I don't know... the male echidna has a four-headed penis and the female echidna has two vaginas.  Sometimes you don't realize the advantages of having more and you can become too entranced with thinking you've got everything you need.