SnarkyPuppy Posted November 25, 2015 Share Posted November 25, 2015 Regarding Pabrai's position: Not sure if his success with "Teck" has been mentioned in this thread, but this article is an interesting read if you are familiar with Zinc. Not a direct comparison but you can certainly draw a lot of parallels... http://www.gurufocus.com/news/136687/monish-pabrai-postmortem-on-his-best-ever-investment--teck-cominco-tck "Because they wanted to get the deal done, they organized about ten billion in a one year bridge loan type facility to close the deal. They planned on going out to the debt and equity markets, and then raise debt through long term bonds to pay off the bridge loan and clean up the capital structure. They closed the deal in 2008, but in the 2nd half of 2008 everything went downhill. Lehman Brothers goes bankrupt. There are no deals to be done on the debt market and the debt markets close. Suddenly, the markets start looking at the wall of debt that Teck has to pay back in 12 months. It clearly outstrips their cash flow, and at the same time, the commodity prices are in freefall. The big concern was that if Teck could not handle their debt in a year, they would have to file for bankruptcy. Teck was looking at massive debt coming due. Within a year, all the commodity prices had collapsed. Their cash flow projections were out the window. The stock went from $50 a share to $4 a share in just a few months. That's when we started to first buy the stock. On the balance sheet, Teck had a lot more assets than liabilities. They had a liquidity mismatch. They had enough assets to pay off all the liabilities, but those assets weren't liquid. The markets were concerned that when the debt came due, Teck wouldn't be able to pay the debt, and they would have to file for bankruptcy. When I looked at the whole thing, I thought that even if they filed for bankruptcy and even if they went through a bankruptcy reorganization, the equity would still have value because there was so much more in assets versus debt. A similar situation happened recently with General Growth (NYSE:GGP). General Growth is a very large mall operator. They have a huge amount of illiquid assets in their very valuable prime properties, but they didn't have the cash flows and the liquidity to service their debt. In General Growth's case, they went bankrupt, but when they came out of bankruptcy, the equity did not get wiped out. I saw the same thing in Teck. Even if they went bankrupt, I didn't see the equity being wiped out. At the same time, I felt that the odds that Teck would file for bankruptcy were very small because they had many levers that they could pull. They could cut the dividend that they were paying. They had gold mines and other assets that they could start selling. They had some hedges in place so some cash flow was guaranteed. They had a whole bunch of assets they could sell piecemeal to different bidders. I also felt that they might see a little bit of a bump in commodity prices. Finally, the top Canadian banks were holding the debt and they have no interest in running a mining company. The Canadian banks could do what has been done with a lot of the commercial real estate in the U.S. They extract a pound of flesh, and do what is known as "extend and pretend." The banks could go to Teck and give extensions on their debt with some higher fees, penalties and covenants. I didn't think that the banks would push them into bankruptcy. I thought the banks would negotiate with them, and then commodity prices would lift from the severely depressed levels. If the company didn't go bankrupt, then this was a straight 5 to 7x gain. Teck's management executed brilliantly. They cancelled the dividend. They went through and sold a bunch of tertiary assets. They got the loan extensions from the banks. They issued equity to China Investment Corp. They juggled through a whole bunch of things over that one-year period. " Link to comment Share on other sites More sharing options...
Picasso Posted November 25, 2015 Share Posted November 25, 2015 You guys sounds bearish with your scenarios. Here's my base case: November 25th, 2014: Oprah announces she read through a couple write ups on ZINC and decided to take an active 30% position. She also issues interest free debt to ZINC collateralized by her WTW stock. ZINC trades up to $15. November 27th, 2014: Martin Shkreli announces he's purchased 50% of all outstanding shares of ZINC, replaces management, and raises the price of zinc by 5000% percent. ZINC trades up to $500. November 30th, 2014: Whitney Tilson says he's shorting ZINC (I guess he tested the zinc and it showed signs of having formaldehyde), market squeezes him up to $1,000 December 1st, 2014: Valeant announces the acquisition of ZINC at $2,500 which should add $2-3 of cash EPS to 2030 earnings. December 2nd, 2014: CoBF changes it's name to "Corner of Our Lord and Savior, Horsehead Holding and Oprah Winfrey." Anyone shorting the stock.... you've been warned.... Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 25, 2015 Share Posted November 25, 2015 You guys sounds bearish with your scenarios. Here's my base case: November 25th, 2014: Oprah announces she read through a couple write ups on ZINC and decided to take an active 30% position. She also issues interest free debt to ZINC collateralized by her WTW stock. ZINC trades up to $15. November 27th, 2014: Martin Shkreli announces he's purchased 50% of all outstanding shares of ZINC, replaces management, and raises the price of zinc by 5000% percent. ZINC trades up to $500. November 30th, 2014: Whitney Tilson says he's shorting ZINC (I guess he tested the zinc and it showed signs of having formaldehyde), market squeezes him up to $1,000 December 1st, 2014: Valeant announces the acquisition of ZINC at $2,500 which should add $2-3 of cash EPS to 2030 earnings. December 2nd, 2014: CoBF changes it's name to "Corner of Our Lord and Savior, Horsehead Holding and Oprah Winfrey." Anyone shorting the stock.... you've been warned.... +1 This exact scenario is why I own the stock as well. Link to comment Share on other sites More sharing options...
AzCactus Posted November 25, 2015 Share Posted November 25, 2015 You guys sounds bearish with your scenarios. Here's my base case: November 25th, 2014: Oprah announces she read through a couple write ups on ZINC and decided to take an active 30% position. She also issues interest free debt to ZINC collateralized by her WTW stock. ZINC trades up to $15. November 27th, 2014: Martin Shkreli announces he's purchased 50% of all outstanding shares of ZINC, replaces management, and raises the price of zinc by 5000% percent. ZINC trades up to $500. November 30th, 2014: Whitney Tilson says he's shorting ZINC (I guess he tested the zinc and it showed signs of having formaldehyde), market squeezes him up to $1,000 December 1st, 2014: Valeant announces the acquisition of ZINC at $2,500 which should add $2-3 of cash EPS to 2030 earnings. December 2nd, 2014: CoBF changes it's name to "Corner of Our Lord and Savior, Horsehead Holding and Oprah Winfrey." Anyone shorting the stock.... you've been warned.... +1 This exact scenario is why I own the stock as well. Lol Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted November 25, 2015 Share Posted November 25, 2015 Looks like the threads become a joke, but I think it's silly to pass on this simply based on "lol they are going into bankruptcy" Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Looks like the threads become a joke, but I think it's silly to pass on this simply based on "lol they are going into bankruptcy" Patience my friend patience :-) I'll repost these in a year or two if the long thesis realize for sure. Then we'll see who is "lol" ing... As a general rule I totally accept future's uncertainty so anyone who understands that wouldn't make these types of jokes in my view. my two cents... Link to comment Share on other sites More sharing options...
Picasso Posted November 25, 2015 Share Posted November 25, 2015 Joking aside, why doesn't Pabrai just fund $100 million of senior PIK notes to ZINC? Have it paid in kind until 2017 or something. That in itself will send ZINC back up to $6-7, get the "zero" off the table and give ZINC another chance at diluting shareholders on a more friendly basis. Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted November 25, 2015 Share Posted November 25, 2015 Looks like the threads become a joke, but I think it's silly to pass on this simply based on "lol they are going into bankruptcy" Patience my friend patience :-) I'll repost these in a year or two if the long thesis realize for sure. Then we'll see who is "lol" ing... As a general rule I totally accept future's uncertainty so anyone who understands that wouldn't make these types of jokes in my view. my two cents... The reason this board is appealing to me is that allows for thoughtful and constructive discussion through various points of views which fosters an effective way to learn. I do not thing "I was right you were wrong" applies to these situations and especially Zinc - it's a probabilistic situation. I like the stock because there is heavy imbalanced risk/reward, and my personal situation allows me to make some moves with house money. I wouldn't be putting rent money on this company. Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted November 25, 2015 Share Posted November 25, 2015 Joking aside, why doesn't Pabrai just fund $100 million of senior PIK notes to ZINC? Have it paid in kind until 2017 or something. That in itself will send ZINC back up to $6-7, get the "zero" off the table and give ZINC another chance at diluting shareholders on a more friendly basis. Honestly I've been asking this myself and it must have to be due to capital constraints. Could it also be possible the current lenders have restrictions against any additional lending? I'm no expert in this area Link to comment Share on other sites More sharing options...
Picasso Posted November 25, 2015 Share Posted November 25, 2015 If it's a lender issue, then he can do a preferred stock deal that pays dividends in ZINC stock until 2017/2018 when they start generating cash again. Maybe he's really sticking to the 10% allocation rule, but that kind of deal would be classic heads I win tails I don't lose much. I don't think his investors would mind moving up the capital structure and having the opportunity to get a zero off the table for the ZINC equity. That's just another way for him to market his fund in a positive light. Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted November 25, 2015 Share Posted November 25, 2015 If it's a lender issue, then he can do a preferred stock deal that pays dividends in ZINC stock until 2017/2018 when they start generating cash again. Maybe he's really sticking to the 10% allocation rule, but that kind of deal would be classic heads I win tails I don't lose much. I don't think his investors would mind moving up the capital structure and having the opportunity to get a zero off the table for the ZINC equity. That's just another way for him to market his fund in a positive light. The 10% is inconsistent with his current FIAT position... Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 25, 2015 Share Posted November 25, 2015 If it's a lender issue, then he can do a preferred stock deal that pays dividends in ZINC stock until 2017/2018 when they start generating cash again. Maybe he's really sticking to the 10% allocation rule, but that kind of deal would be classic heads I win tails I don't lose much. I don't think his investors would mind moving up the capital structure and having the opportunity to get a zero off the table for the ZINC equity. That's just another way for him to market his fund in a positive light. The 10% is inconsistent with his current FIAT position... The 10% is based on cost basis - not on market value. Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Looks like the threads become a joke, but I think it's silly to pass on this simply based on "lol they are going into bankruptcy" Patience my friend patience :-) I'll repost these in a year or two if the long thesis realize for sure. Then we'll see who is "lol" ing... As a general rule I totally accept future's uncertainty so anyone who understands that wouldn't make these types of jokes in my view. my two cents... The reason this board is appealing to me is that allows for thoughtful and constructive discussion through various points of views which fosters an effective way to learn. I do not thing "I was right you were wrong" applies to these situations and especially Zinc - it's a probabilistic situation. That's exactly my point. Why would anyone joke about a possible scenario? What's the value in doing so? If you don't think it is highly probable then you can assign whatever probability you'd like but joking on something as if it is impossible shows some arrogance according to me. Also agreed, I am not here to prove that "I was right others were wrong". I was just trying to raise the possibility that the people who joke around on this name now might wish they have not done so later on... that's all. Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Joking aside, why doesn't Pabrai just fund $100 million of senior PIK notes to ZINC? Have it paid in kind until 2017 or something. That in itself will send ZINC back up to $6-7, get the "zero" off the table and give ZINC another chance at diluting shareholders on a more friendly basis. Why do everyone assume these "superinvestors" including Pabrai has limitless investing money? His fund should be doing very poorly for sometime because of ZINC, PKX etc. positions and I don't think it is easy even for him to ask for additional money from investors especially when you are down a lot. I think the last investments he made on ZINC was from his other accounts (could be personal I don't know), not through Dalal Street directly so you might think he already invested whatever he could on ZINC. Link to comment Share on other sites More sharing options...
arcube Posted November 25, 2015 Share Posted November 25, 2015 Joking aside, why doesn't Pabrai just fund $100 million of senior PIK notes to ZINC? Have it paid in kind until 2017 or something. That in itself will send ZINC back up to $6-7, get the "zero" off the table and give ZINC another chance at diluting shareholders on a more friendly basis. Why do everyone assume these "superinvestors" including Pabrai has limitless investing money? His fund should be doing very poorly for sometime because of ZINC, PKX etc. positions and I don't think it is easy even for him to ask for additional money from investors especially when you are down a lot. I think the last investments he made on ZINC was from his other accounts (could be personal I don't know), not through Dalal Street directly so you might think he already invested whatever he could on ZINC. +1. I also think it's hard to have $100 mm lying around and structure a debt piece like that. We really don't know his detailed true thesis. For all I know, he knows what he is doing and either he is tense on this one or is just smiling reading these posts and shopping for a big Turkey. Happy Thanksgiving to all. Truly thankful to learn from all people here with their perspectives and angles of approach. Link to comment Share on other sites More sharing options...
Picasso Posted November 25, 2015 Share Posted November 25, 2015 I guess we can only joke around when the stock goes up 85%, not down 85%. I'll note that for next time. Pabrai doesn't need a ton of money relative to his AUM to turn ZINC into a winner again. Maybe he knows this and is waiting to see how bad this gets before ultimately stepping in, assuming he wants to step in at all. We're not talking about billions of dollars here. Even $50 million could get his equity to the finish line. Link to comment Share on other sites More sharing options...
AzCactus Posted November 25, 2015 Share Posted November 25, 2015 Joking aside, why doesn't Pabrai just fund $100 million of senior PIK notes to ZINC? Have it paid in kind until 2017 or something. That in itself will send ZINC back up to $6-7, get the "zero" off the table and give ZINC another chance at diluting shareholders on a more friendly basis. Why do everyone assume these "superinvestors" including Pabrai has limitless investing money? His fund should be doing very poorly for sometime because of ZINC, PKX etc. positions and I don't think it is easy even for him to ask for additional money from investors especially when you are down a lot. I think the last investments he made on ZINC was from his other accounts (could be personal I don't know), not through Dalal Street directly so you might think he already invested whatever he could on ZINC. +1. I also think it's hard to have $100 mm lying around and structure a debt piece like that. We really don't know his detailed true thesis. For all I know, he knows what he is doing and either he is tense on this one or is just smiling reading these posts and shopping for a big Turkey. Not sure he's smiling given how Zinc is doing. If I'm not mistaken he's been in this position in some form for ~6 years and is still down. Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 I guess we can only joke around when the stock goes up 85%, not down 85%. I'll note that for next time. Pabrai doesn't need a ton of money relative to his AUM to turn ZINC into a winner again. Maybe he knows this and is waiting to see how bad this gets before ultimately stepping in, assuming he wants to step in at all. We're not talking about billions of dollars here. Even $50 million could get his equity to the finish line. You can joke around whenever you want and on whatever you want. If your joke is implying how stupid a possible scenario is then that is being disrespectful to how widespread the events can fold in the future. His AUM was $377M as of 09/30 so $50M is ~13% so not that insignificant I think. Also not sure he can sell ZINC in the middle of a total commodities meltdown to his investors either. If this was a more normal time, it could have been easier. I hope I am wrong and we'll see that investment though... Link to comment Share on other sites More sharing options...
benhacker Posted November 25, 2015 Share Posted November 25, 2015 Not sure it matters your point Tyler, but his AUM was >$500m at end of Q3. [Funds only, not insurance / Dhando, etc] I think you are confusing SEC reporting positions with "AUM". Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Not sure it matters your point Tyler, but his AUM was >$500m at end of Q3. I think you are confusing SEC reporting positions with "AUM". Sorry but I only have access to SEC reporting. Thanks for giving us a more accurate number though... Link to comment Share on other sites More sharing options...
Picasso Posted November 25, 2015 Share Posted November 25, 2015 Is he really down to that little? I could have sworn he was around $700-800 million of AUM earlier this year. I'm also not implying how stupid it is for ZINC to go up or down. I readily admit there are a very wide range of outcomes here. Either move could be equally brilliant or retarded. This is a $500 million + enterprise value, and a now very commodity/China sensitive business with a shrinking equity stub. The outcome for the equity isn't going to be about how right or wrong anyone was. You also need a lot of luck; hopefully the price on the stock lets you take advantage of the potential luck. I just bought some other steel related plays so I'm hoping the China thing gets resolved. But you shouldn't underestimate how badly China can screw up the "all else being equal" thesis. Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Rather than raising more money, which would be difficult for him, he could sell some of his in the money investments like FIAT partially at least in order to make such investment. He would find the timing early though I think. There are other levers that the company call pull (ramp up, selling Zochem/Inmetco, possible increase in Zinc prices, product sale agreements for cash etc.) for now so if times become desperate, I wouldn't be surprised to see that investment actually... Link to comment Share on other sites More sharing options...
arcube Posted November 25, 2015 Share Posted November 25, 2015 Is he really down to that little? I could have sworn he was around $700-800 million of AUM earlier this year. I'm also not implying how stupid it is for ZINC to go up or down. I readily admit there are a very wide range of outcomes here. Either move could be equally brilliant or retarded. This is a $500 million + enterprise value, and a now very commodity/China sensitive business with a shrinking equity stub. The outcome for the equity isn't going to be about how right or wrong anyone was. You also need a lot of luck; hopefully the price on the stock lets you take advantage of the potential luck. I just bought some other steel related plays so I'm hoping the China thing gets resolved. But you shouldn't underestimate how badly China can screw up the "all else being equal" thesis. That is correct Picasso if you include Dhandho Holdings (insurance vehicle that he raised money for). Link to comment Share on other sites More sharing options...
tylerdurden Posted November 25, 2015 Share Posted November 25, 2015 Is he really down to that little? I could have sworn he was around $700-800 million of AUM earlier this year. I'm also not implying how stupid it is for ZINC to go up or down. I readily admit there are a very wide range of outcomes here. Either move could be equally brilliant or retarded. This is a $500 million + enterprise value, and a now very commodity/China sensitive business with a shrinking equity stub. The outcome for the equity isn't going to be about how right or wrong anyone was. You also need a lot of luck; hopefully the price on the stock lets you take advantage of the potential luck. I just bought some other steel related plays so I'm hoping the China thing gets resolved. But you shouldn't underestimate how badly China can screw up the "all else being equal" thesis. That's right. China has the potential to screw lots of things for sure... Link to comment Share on other sites More sharing options...
kranthi_vic Posted November 25, 2015 Share Posted November 25, 2015 Im still new to investing, but one of the things i suspect is when i clone mohnish i should also clone his risk profile. So if he is 40% in fcau and 5% in zinc...then clone that fully..dont invest equally in both, which is the mistake i committed, even if you get it much cheaper than him....as a corollary i personally dont think Mohnish will invest in Horsehead anymore, until the risk profile changes for Horsehead...just my opinion. Link to comment Share on other sites More sharing options...
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