ZINC - Horsehead Holding Corp

[str8shot]

I don't think management is credible anyways but it feels they have an hidden agenda by delaying this payment to convertible note holders. If we had known what that is that would be quite valuable.

 

Given that they had $60-70M in liquidity at the end of Q3 (half cash and half credit line), and assuming the credit line didn't get pulled by the creditor, it seems they'd have ample cash to make the $1.8M payment. If so, it seems they'd be using the grace period ploy as leverage to negotiate with debt holders as part of some kind of restructuring initiative. With HH having engaged Lazard, and the debt holders having engaged an advisor, some form of negotiation seems to be underway. 

[SnarkyPuppy]

I don't think management is credible anyways but it feels they have an hidden agenda by delaying this payment to convertible note holders. If we had known what that is that would be quite valuable.

 

Given that they had $60-70M in liquidity at the end of Q3 (half cash and half credit line), and assuming the credit line didn't get pulled by the creditor, it seems they'd have ample cash to make the $1.8M payment. If so, it seems they'd be using the grace period ploy as leverage to negotiate with debt holders as part of some kind of restructuring initiative. With HH having engaged Lazard, and the debt holders having engaged an advisor, some form of negotiation seems to be underway.

 

Does anyone have any experience with these situations?  What are the likely outcomes here?

[tylerdurden]

I don't think management is credible anyways but it feels they have an hidden agenda by delaying this payment to convertible note holders. If we had known what that is that would be quite valuable.

 

Given that they had $60-70M in liquidity at the end of Q3 (half cash and half credit line), and assuming the credit line didn't get pulled by the creditor, it seems they'd have ample cash to make the $1.8M payment. If so, it seems they'd be using the grace period ploy as leverage to negotiate with debt holders as part of some kind of restructuring initiative. With HH having engaged Lazard, and the debt holders having engaged an advisor, some form of negotiation seems to be underway.

 

Sounds reasonable but with these guys always hard to know. Any convertible noteholder would be informed somehow on those negotiations, right? Do we gave any convertible niteholder on this board who could perhaps shed more light on what's going on here exactly?

[Swami X]

 

The convertible bonds traded last on Jan 11th at $21.95. The stock has been cut in half since then.

 

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C589105&symbol=ZINC3893598

 

Does any have CUSIPs for the other ZINC bonds?

[aws]

440694AC1 trades in the 50s

 

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C578803&symbol=ZINC3879384

 

 

[Sebastien]

The convertible bond traded as low as 20$ at the end of 2015 versus 43$ in november

 

[aws]

Did they ever end up issuing any shares under the at-the-market equity program?

[Orchard]

I don't have a horse in this race and know nothing about this company. However, the large coupon payments are on the 10.5% bond which gets coupon payments on Dec 1 / Jun 1. Somehow, that coupon payment was made which would be strange if the company intended to file now.

[valueyoda]

Let's stop fooling yourself that there is any residual equity value left in this stock. I have covered my short way too early, but the only way to make any money on this is to buy the bonds at the right price. I have said it repeatedly that the only reason why this thread is so long - there are so many commodity producers that are bigger that are never mentioned on this forum -  is because of Pabrai.

[Foubearss]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to pay debt by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

Right - this is what my previous post was alluding to.  I sent a note to the journalist stating that it seemed like they were stretching the truth by quoting everything but the section of the article claiming they plan on paying. 

 

This was his response:

"Mr. Alavi told me in an email they plan to make a timely payment . We don't quote everything people tell us. We paraphrase much of it.

 

Hope this helps.

 

Len"

 

Different answer / same question from another paper:

"Thanks for your email.

 

I reached out to Horsehead this morning and asked them point-blank whether they planned to pay. And the Horsehead spokesman told me directly that yes, the plan is to make the payment within the grace period. I have a quote from him saying that.

 

And it’s a different thing than the company actually making the payment. That’s up to them."

 

 

Obviously any info - even directly from management - is totally useless at this point.  I'm just trying to have a little fun while staring at my losses.

 

The quote "Do not attribute any action to malice that can be explained by stupidity." comes to mind. Couple of possible explanations:

 

1) Employee was out during the holidays, assumed his backup had sent in the check

2) Leverage over bond holders. But what leverage do they think to get with just merely being a couple of days late with the check. The only thing it does is suppliers/employees/customers wondering what is going on and if checks will still clear or orders will still be delivered. If I were a guessing guy, senior people have been on the phone all day reassuring those stakeholders

3) ZINC intentionally manipulating the stock price lower. Most apparent reason would be to take the company private, but why risk the legal risk.

 

I am going with 1. Anybody with other explanations?

[valueyoda]

Does anyone know how much money he lost in his total portfolio (not just the 13-f filing, as I might miss some foreign positions), as both his GM warrants, FCAU, ZINC have declined substantially? Guy Spier also had a huge piggyback position, but also a large stake in American Express and Posco before their respective declines.

[walt373]

It does seem pretty early for them to start defaulting on coupons?  They currently have enough money to pay?

 

Yes, especially since the actual size of the coupon is very small, but if they are negotiating with secured bondholders it negatively colors the negotiation to be paying out cash (which impaired secured creditors will view as rightfully theirs) to junior creditors.

 

You can't expect that the company will keep playing out the string until it has no liquidity - if its going to file it would want to do so with meaningful cash on the balance sheet.

 

The obvious assumption to make is that they are working on a bankruptcy plan with the secured lenders - you'd have to figure equity and convert holders stand to be wiped out here.

 

I agree with morningstar's take on the situation. Orchard, the difference is that the bonds you refer to are secured and senior to the bonds that they missed the interest payment on. The secured debt last traded at 59 meaning they are likely taking losses. Due to the rule of absolute priority, if secured creditors are not made whole, anyone under them in the capital structure should not get anything, in theory (in practice, they may get a little value in bankruptcy to speed the process up). So that leaves little for unsecured debt and nothing for equity.

 

This means that any interest paid to the unsecured debt is coming out of the secured creditors' recovery. This might count as a voidable preference, which could be unwound in bankruptcy. It's also possible that the secured creditors have ways to legally block interest payment to the unsecured debt, if for example covenants have been breached. I'm by no means a distressed debt expert so feel free to correct me if I'm wrong.

 

Secured debt may make a good investment depending on how much value is left. If you want to gamble, buy the unsecured debt or some cheap calls to play a short squeeze. But at this point I think there's very little hope of value for equity. I would get out ahead of the funds and institutions, which will be forced to sell when they file and delist.

[hobbit]

It does seem pretty early for them to start defaulting on coupons?  They currently have enough money to pay?

 

Yes, especially since the actual size of the coupon is very small, but if they are negotiating with secured bondholders it negatively colors the negotiation to be paying out cash (which impaired secured creditors will view as rightfully theirs) to junior creditors.

 

You can't expect that the company will keep playing out the string until it has no liquidity - if its going to file it would want to do so with meaningful cash on the balance sheet.

 

The obvious assumption to make is that they are working on a bankruptcy plan with the secured lenders - you'd have to figure equity and convert holders stand to be wiped out here.

 

I agree with morningstar's take on the situation. Orchard, the difference is that the bonds you refer to are secured and senior to the bonds that they missed the interest payment on. The secured debt last traded at 59 meaning they are likely taking losses. Due to the rule of absolute priority, if secured creditors are not made whole, anyone under them in the capital structure should not get anything, in theory (in practice, they may get a little value in bankruptcy to speed the process up). So that leaves little for unsecured debt and nothing for equity.

 

This means that any interest paid to the unsecured debt is coming out of the secured creditors' recovery. This might count as a voidable preference, which could be unwound in bankruptcy. It's also possible that the secured creditors have ways to legally block interest payment to the unsecured debt, if for example covenants have been breached. I'm by no means a distressed debt expert so feel free to correct me if I'm wrong.

 

Secured debt may make a good investment depending on how much value is left. If you want to gamble, buy the unsecured debt or some cheap calls to play a short squeeze. But at this point I think there's very little hope of value for equity. I would get out ahead of the funds and institutions, which will be forced to sell when they file and delist.

 

All this would be correct if IR was saying that they do not intend on paying. Ali Alavi has mentioned it in a number of replies that the company intends to pay so clearly there is no legal hurdle blocking them.

 

I still do not know why they would miss the payment though

[walt373]

Best not place all your hope in the word of the IR guy. Doubt he has full information and even management probably doesn't either.

[tylerdurden]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to pay debt by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

Right - this is what my previous post was alluding to.  I sent a note to the journalist stating that it seemed like they were stretching the truth by quoting everything but the section of the article claiming they plan on paying. 

 

This was his response:

"Mr. Alavi told me in an email they plan to make a timely payment . We don't quote everything people tell us. We paraphrase much of it.

 

Hope this helps.

 

Len"

 

Different answer / same question from another paper:

"Thanks for your email.

 

I reached out to Horsehead this morning and asked them point-blank whether they planned to pay. And the Horsehead spokesman told me directly that yes, the plan is to make the payment within the grace period. I have a quote from him saying that.

 

And it’s a different thing than the company actually making the payment. That’s up to them."

 

 

Obviously any info - even directly from management - is totally useless at this point.  I'm just trying to have a little fun while staring at my losses.

 

The quote "Do not attribute any action to malice that can be explained by stupidity." comes to mind. Couple of possible explanations:

 

1) Employee was out during the holidays, assumed his backup had sent in the check

2) Leverage over bond holders. But what leverage do they think to get with just merely being a couple of days late with the check. The only thing it does is suppliers/employees/customers wondering what is going on and if checks will still clear or orders will still be delivered. If I were a guessing guy, senior people have been on the phone all day reassuring those stakeholders

3) ZINC intentionally manipulating the stock price lower. Most apparent reason would be to take the company private, but why risk the legal risk.

 

I am going with 1. Anybody with other explanations?

 

I don't think it is that simple. Perhaps we should reach out to SEC and ask them to look into this. In terms of disclosure perspective this seems illegal to me.

[gfcfa]

Another thing I find interesting is in Pabrai's speech at BC he says something to this extent:

 

If wealth is lost nothing is lost

If health is lost something is lost and

If character is lost everything is lost. 

 

Not trying to derail the thread but something tells me his LP's may not wholeheartedly agree with the above.

 

I'm an LP in Dhandho Holdings, and, for what it's worth, I agree wholeheartedly with Pabrai's statement.  And, frankly, I'd be surprised if any of my fellow LPs disagreed.

[walt373]

The last time the unsecured debt was paid interest, middle of last year, both the secured and unsecured debt and were still trading over 100.

 

Looks like the unsecured traded today at 5.5, down from 21.95 on Monday. That's a bigger drop than the stock...

[arcube]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to pay debt by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

Right - this is what my previous post was alluding to.  I sent a note to the journalist stating that it seemed like they were stretching the truth by quoting everything but the section of the article claiming they plan on paying. 

 

This was his response:

"Mr. Alavi told me in an email they plan to make a timely payment . We don't quote everything people tell us. We paraphrase much of it.

 

Hope this helps.

 

Len"

 

Different answer / same question from another paper:

"Thanks for your email.

 

I reached out to Horsehead this morning and asked them point-blank whether they planned to pay. And the Horsehead spokesman told me directly that yes, the plan is to make the payment within the grace period. I have a quote from him saying that.

 

And it’s a different thing than the company actually making the payment. That’s up to them."

 

 

Obviously any info - even directly from management - is totally useless at this point.  I'm just trying to have a little fun while staring at my losses.

 

The quote "Do not attribute any action to malice that can be explained by stupidity." comes to mind. Couple of possible explanations:

 

1) Employee was out during the holidays, assumed his backup had sent in the check

2) Leverage over bond holders. But what leverage do they think to get with just merely being a couple of days late with the check. The only thing it does is suppliers/employees/customers wondering what is going on and if checks will still clear or orders will still be delivered. If I were a guessing guy, senior people have been on the phone all day reassuring those stakeholders

3) ZINC intentionally manipulating the stock price lower. Most apparent reason would be to take the company private, but why risk the legal risk.

 

I am going with 1. Anybody with other explanations?

 

I don't think it is that simple. Perhaps we should reach out to SEC and ask them to look into this. In terms of disclosure perspective this seems illegal to me.

 

Not a bad idea.

 

Just wondering why no one on this thread is discussing the role of the Board of Directors for this Company. I am having a hard time finding them (don't have CapIq handy). Are they equally incompetent or lost in the woods here like the current management!

 

I have to agree with everyone on the management ability here. Clearly not the savviest people (operationally and corporate finance wise) around - how can they miss a scheduled payment knowing fully well how the market will take it. Also getting paid at shareholder expense with such large compensation. A true shit show to say the least. I might be wrong but MP follows WEB's non-confrontational approach and I doubt he can crack the whip here.

 

Picasso is most likely right, this without any further and timely disclosure by management, is a dead stock.

 

[arcube]

Another thing I find interesting is in Pabrai's speech at BC he says something to this extent:

 

If wealth is lost nothing is lost

If health is lost something is lost and

If character is lost everything is lost. 

 

Not trying to derail the thread but something tells me his LP's may not wholeheartedly agree with the above.

 

I'm an LP in Dhandho Holdings, and, for what it's worth, I agree wholeheartedly with Pabrai's statement.  And, frankly, I'd be surprised if any of my fellow LPs disagreed.

 

While I believe in the statement "If wealth is lost nothing is lost" and else, help me reconcile that with WEB's first rule " Don't lose money". It seems to me that most of the LP's would be concerned if this really goes to zero while believing that "nothing is lost" (hoping that this doesn't cause a health issue or a character issue). I think people cherry pick phrases, idioms, sayings, quotes to suit the situation. Clearly MP did not time commodity cycle well this time although I think the jury is still out. I will be looking at the post mortem analysis when it comes out.

 

[str8shot]

Another thing I find interesting is in Pabrai's speech at BC he says something to this extent:

 

If wealth is lost nothing is lost

If health is lost something is lost and

If character is lost everything is lost. 

 

Not trying to derail the thread but something tells me his LP's may not wholeheartedly agree with the above.

 

I'm an LP in Dhandho Holdings, and, for what it's worth, I agree wholeheartedly with Pabrai's statement.  And, frankly, I'd be surprised if any of my fellow LPs disagreed.

 

George, I agree too. But at the same time Pabrai has said he believes in Buffett's no 1 rule of investing - don't lose principal. And I assume he strives to honor that rule. But mistakes happen.

 

A question to you as an LP - to my knowledge Pabrai bought about 2m shares of ZINC at around $8 last July/Aug for Dhandho. Has Pabrai conveyed anything to the LPs recently as to what is going on with this stock and what he expects to unfold?

[str8shot]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to pay debt by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

Right - this is what my previous post was alluding to.  I sent a note to the journalist stating that it seemed like they were stretching the truth by quoting everything but the section of the article claiming they plan on paying. 

 

This was his response:

"Mr. Alavi told me in an email they plan to make a timely payment . We don't quote everything people tell us. We paraphrase much of it.

 

Hope this helps.

 

Len"

 

Different answer / same question from another paper:

"Thanks for your email.

 

I reached out to Horsehead this morning and asked them point-blank whether they planned to pay. And the Horsehead spokesman told me directly that yes, the plan is to make the payment within the grace period. I have a quote from him saying that.

 

And it’s a different thing than the company actually making the payment. That’s up to them."

 

 

Obviously any info - even directly from management - is totally useless at this point.  I'm just trying to have a little fun while staring at my losses.

 

The quote "Do not attribute any action to malice that can be explained by stupidity." comes to mind. Couple of possible explanations:

 

1) Employee was out during the holidays, assumed his backup had sent in the check

2) Leverage over bond holders. But what leverage do they think to get with just merely being a couple of days late with the check. The only thing it does is suppliers/employees/customers wondering what is going on and if checks will still clear or orders will still be delivered. If I were a guessing guy, senior people have been on the phone all day reassuring those stakeholders

3) ZINC intentionally manipulating the stock price lower. Most apparent reason would be to take the company private, but why risk the legal risk.

 

I am going with 1. Anybody with other explanations?

 

I don't think it is that simple. Perhaps we should reach out to SEC and ask them to look into this. In terms of disclosure perspective this seems illegal to me.

 

Not a bad idea.

 

Just wondering why no one on this thread is discussing the role of the Board of Directors for this Company. I am having a hard time finding them (don't have CapIq handy). Are they equally incompetent or lost in the woods here like the current management!

 

I have to agree with everyone on the management ability here. Clearly not the savviest people (operationally and corporate finance wise) around - how can they miss a scheduled payment knowing fully well how the market will take it. Also getting paid at shareholder expense with such large compensation. A true shit show to say the least. I might be wrong but MP follows WEB's non-confrontational approach and I doubt he can crack the whip here.

 

Picasso is most likely right, this without any further and timely disclosure by management, is a dead stock.

 

At the risk of oversimplifying, I think it's pretty straight forward. I'm not buying mgmt is so clueless they would inadvertently miss a $1.8M payment on Jan 1. Ali from IR has clearly indicated they are leveraging the grace period, plan to make the payment, and are not in default by using the grace period. At the same time it has been reported that mgmt has engaged Lazard for advice while the debt holders have engaged their own adviser. Clearly the two parties are plotting and may be having dialogue around restructuring options.

 

The stock may well be dead. But we don't know enough yet to say that. 

[SnarkyPuppy]

I can't imagine a situation where pabrai does not attempt something to avoid a total goose egg - whether it's selling out of his position or a sweetheart loan deal.  Just doesn't make sense for him to sit and watch it 0 without any action

[str8shot]

I can't imagine a situation where pabrai does not attempt something to avoid a total goose egg - whether it's selling out of his position or a sweetheart loan deal.  Just doesn't make sense for him to sit and watch it 0 without any action

 

Agreed. Especially when he could have sold out a few months back: from mid-Oct to mid-Dec the share price ranged from $5 to $2.50. And, contrary to his statement (during his recent Dec 3rd talk to BC students) that he doesn't talk to management, he's been associated with Horsehead for many years, owns 14% of the equity, and had the CFO attend his annual fund meeting last Fall. Ditto for Guy Spier, who I emailed with in late December per a previous post.

[500pages]

a few members are saying equity is highly likely a zero. I can see that if the plant is known to not be able to ramp to sufficient debt coverage.

Short of that, I wanted to challenge that view and get shouted down with something sensible.

Otherwise, given Horseheads' assets (Zochem, Inmetco, dust processors/contracts), and the large call option of Mooresboro ramping and potentially minting cash, as well as Mohnish being less than 100% content losing 100% of his Horsehead position, I have trouble following the logic.

To put it another way (exaggerating a little), I think it might make economic sense to buy out all of horsehead, and ship all of its EAF dust to Namibia where Skorpion is ramping down and Lichen is no walk in the park.

At the risk of sounding like someone in denial, do folks see equity taking a large dilution hit (5x, 10x) and the company reemerging whatever loan/restructuring? Coz at these prices even 10x dilution can be attractive.

In other words, assuming (for the sake of the argument) zinc price recovery, if the eventual EV is north of 1.2B (and maybe 1.5B), and even if most of that accrues to bondholders, is not it possible that equity winds up with a bit more than 40m?

[hobbit]

a few members are saying equity is highly likely a zero. I can see that if the plant is known to not be able to ramp to sufficient debt coverage.

Short of that, I wanted to challenge that view and get shouted down with something sensible.

Otherwise, given Horseheads' assets (Zochem, Inmetco, dust processors/contracts), and the large call option of Mooresboro ramping and potentially minting cash, as well as Mohnish being less than 100% content losing 100% of his Horsehead position, I have trouble following the logic.

To put it another way (exaggerating a little), I think it might make economic sense to buy out all of horsehead, and ship all of its EAF dust to Namibia where Skorpion is ramping down and Lichen is no walk in the park.

At the risk of sounding like someone in denial, do folks see equity taking a large dilution hit (5x, 10x) and the company reemerging whatever loan/restructuring? Coz at these prices even 10x dilution can be attractive.

In other words, assuming (for the sake of the argument) zinc price recovery, if the eventual EV is north of 1.2B (and maybe 1.5B), and even if most of that accrues to bondholders, is not it possible that equity winds up with a bit more than 40m?

 

Yah I completely agree , unless the management gives up all hope of plant coming to 80-90% capacity in the next year or so....ZINC has every chance of reversing its fortunes...