muscleman Posted October 9, 2015 Share Posted October 9, 2015 5.8x-6.0x leverage? For a business playing in a relatively cyclical industry, and in a company which has reasonably high fixed costs (i.e. plenty of operational leverage)? Where is the margin of safety? Is specialty chemical a cyclical industry? I am relatively new to this. :) There are hundreds of specialty chemical companies producing hundreds of kinds of products. I don't think it makes sense to paint them all with the same brush simply because they share the similarity of producing chemicals. Ok. So its moat is probably not as strong as a cable company then? Why do they say they are in niche markets? Are their products unable to be produced and irreplaceable by other companies? ::) Link to comment Share on other sites More sharing options...
Picasso Posted October 9, 2015 Share Posted October 9, 2015 Because you can be in a niche market without having a moat? Link to comment Share on other sites More sharing options...
Liberty Posted October 9, 2015 Share Posted October 9, 2015 Because you can be in a niche market without having a moat? Exactly. Making unicycles might be a niche business, but it doesn't mean that anyone who wants to make unicycles can't just come in and sell its own... The main way that operating in a niche protects you is that the market is likely too small to interest the big sharks. If you're operating in a $5m software end market, chances are that Microsoft won't care about coming in to compete with you...but there might be plenty of other small fish fighting for that corner of the market if it's profitable and there are no barriers to entry. Link to comment Share on other sites More sharing options...
Trevor Posted October 9, 2015 Share Posted October 9, 2015 5.8x-6.0x leverage? For a business playing in a relatively cyclical industry, and in a company which has reasonably high fixed costs (i.e. plenty of operational leverage)? Where is the margin of safety? That's pro-forma with just the benefit of already realized synergies. I.e. nearly none. Link to comment Share on other sites More sharing options...
Gamecock-YT Posted October 23, 2015 Share Posted October 23, 2015 CEO is retiring, stock is getting pounded. Bill Ackman isn't having a good week. Link to comment Share on other sites More sharing options...
cogitator99 Posted October 30, 2015 Share Posted October 30, 2015 Interesting times to be sure. Story seems to be falling apart at this point. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted November 11, 2015 Share Posted November 11, 2015 "PAH produces speciality chemicals for a wide range of industries. It manufactures over 1,000 compounds, and its largest customer represents only 3% of sales. It exhibits very little cyclicality." quote from horizon kinetics q1/14 letter. is that statement correct? Link to comment Share on other sites More sharing options...
Haasje Posted November 12, 2015 Share Posted November 12, 2015 I did not check but that's what the analyst on Pershing Sq last call said as well. Slightly different worlding. Traded down with industrials but was actually not exposed to industrial cycle or something to that effect. Link to comment Share on other sites More sharing options...
muscleman Posted November 12, 2015 Share Posted November 12, 2015 Does anyone have thoughts on PAH's post-synergy EBITDA? Link to comment Share on other sites More sharing options...
muscleman Posted January 14, 2016 Share Posted January 14, 2016 The stock price has fallen a lot but I still have trouble understanding it. Adjusted Ebitda 460 to 500 M. Long term debt 3.4 Bn. Half of it is floating rate debt. "In August 2015, the Company entered into a series of pay fixed, receiving floating interest rate swaps with respect to a portion of its indebtedness. The swaps effectively fix the floating base rate portion of the interest payments on approximately $1.16 billion of the Company's USD denominated debt and €285 million of its Euro denominated debt at 1.96% and 1.20%, respectively, from September 2015 through June 2020." This part is hard to understand. In the latest 10-Q's long term debt table, I don't see any 1.16 bn debt? EV 5.4 bn. Adjusted EBITDA at most 500m. EV/EBITDA nearly 11. This seems way too high for my taste. :o Link to comment Share on other sites More sharing options...
muscleman Posted January 14, 2016 Share Posted January 14, 2016 http://www.sec.gov/Archives/edgar/data/1590714/000095014215002558/eh1501406_8k.htm Escrow Issuer issued $500 million aggregate principal amount of 10.375% senior notes due 2021 (the “Notes”). What made them decide to issue debt at such high cost? Seems desperate? Link to comment Share on other sites More sharing options...
Picasso Posted January 14, 2016 Share Posted January 14, 2016 For as levered as these guys are, that's actually not too bad in this environment. Link to comment Share on other sites More sharing options...
Guest wellmont Posted January 14, 2016 Share Posted January 14, 2016 The stock price has fallen a lot but I still have trouble understanding it. Adjusted Ebitda 460 to 500 M. Long term debt 3.4 Bn. Half of it is floating rate debt. "In August 2015, the Company entered into a series of pay fixed, receiving floating interest rate swaps with respect to a portion of its indebtedness. The swaps effectively fix the floating base rate portion of the interest payments on approximately $1.16 billion of the Company's USD denominated debt and €285 million of its Euro denominated debt at 1.96% and 1.20%, respectively, from September 2015 through June 2020." This part is hard to understand. In the latest 10-Q's long term debt table, I don't see any 1.16 bn debt? EV 5.4 bn. Adjusted EBITDA at most 500m. EV/EBITDA nearly 11. This seems way too high for my taste. :o They just closed a big acquisition To me it looks like pf adj ebitda is $842m Link to comment Share on other sites More sharing options...
muscleman Posted January 14, 2016 Share Posted January 14, 2016 The stock price has fallen a lot but I still have trouble understanding it. Adjusted Ebitda 460 to 500 M. Long term debt 3.4 Bn. Half of it is floating rate debt. "In August 2015, the Company entered into a series of pay fixed, receiving floating interest rate swaps with respect to a portion of its indebtedness. The swaps effectively fix the floating base rate portion of the interest payments on approximately $1.16 billion of the Company's USD denominated debt and €285 million of its Euro denominated debt at 1.96% and 1.20%, respectively, from September 2015 through June 2020." This part is hard to understand. In the latest 10-Q's long term debt table, I don't see any 1.16 bn debt? EV 5.4 bn. Adjusted EBITDA at most 500m. EV/EBITDA nearly 11. This seems way too high for my taste. :o They just closed a big acquisition To me it looks like pf adj ebitda is $842m Oh, are you saying the numbers I saw did not include Alent acquisition? My bad...... :o In that case the debt number of 3.4 bn is likely not correct either. I will double check on this. Sorry. What's the maintainence capex that you would estimate on these chemical producers? I don't think they could be as low as the natural gas pipeline or cable operators right? :) Link to comment Share on other sites More sharing options...
Guest wellmont Posted January 14, 2016 Share Posted January 14, 2016 The pah website has a presentation that has some pro forma numbers. I believe $4b of net debt for 2016. Sorry I don't follow it closely. Link to comment Share on other sites More sharing options...
Picasso Posted January 14, 2016 Share Posted January 14, 2016 Capex is lower than pipelines etc. Again some simple searches and looking through past filings and it's all there. Link to comment Share on other sites More sharing options...
muscleman Posted January 14, 2016 Share Posted January 14, 2016 The pah website has a presentation that has some pro forma numbers. I believe $4b of net debt for 2016. Sorry I don't follow it closely. Thank you! I don't understand why they issued the 2021 10.5% unsecured note. The rate is so high. Even with the optimistic 900 M EBITDA after synergy, the EV/EBITDA is 8.1. Loans are floating rates, but there is a statement in the SEC filing saying they swapped 1.16 bn into fixed rate. But can't find further info on that. Link to comment Share on other sites More sharing options...
kab60 Posted January 31, 2016 Share Posted January 31, 2016 Haven't followed but I think this writeup is pretty good: http://beforelosingmysanity.blogspot.dk/2016/01/whats-going-on-with-platform-specialty.html Link to comment Share on other sites More sharing options...
Picasso Posted February 9, 2016 Share Posted February 9, 2016 I'm at a loss figuring out why Ackman paid so much in the last offering. $26! I'm estimating this is trading around 8x EV/EBITDA. Ackman paid around 15x Ev/EBITDA. Although that's based on the current estimates. He might have paid around 13-14x if you use the prior estimates and back out the last acquisition. I wonder if it's possible to change the structure on the founder preferred. Why can't Franklin & Co start buying into PAH equity and eliminate the terms on the founder shares? That would strike me as the logical thing to do here and maybe open up the stock to a wider range of buyers who were turned off by that unusual private equity comp structure. Otherwise it just seems like they became very greedy and flew way too close to the sun. These guys are dealmakers and they won't be able to make any deals at 8x when they're used to buying up assets over 12x. Comps haven't come down nearly as much as PAH. A few other aspects that worry me. 1) The promotional nature of the company with some of the insider buys. 2) A super aggressive, clubroom mentality that might incentivize them to play with the numbers. 3) They showed no restraint with acquisitions. What's to say they don't come out the other side and blow up again? 4) Ackman and Franklin go scuba diving together, can Ackman get Franklin to swallow painful medicine if needed? They're buddies after all. It's another of the more widely held hedge fund hotels so it's kind of hard to get a feel for what's driving the price action. I'm leaning towards a couple funds getting blown out of the position as they face pressure across other holdings but this is also a somewhat cyclical business with a lot amount of leverage. The stub is getting smaller and smaller and they're at covenant limits but I'm getting more interested at these prices. As a side note, Nomad has blown up as well. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 9, 2016 Share Posted February 9, 2016 The credit on this thing is now yielding 12-13% and getting juicier every day. A zero on the equity is a genuine possibility here. How do you handicap the probability of a zero? Another thought exercise: if Martin Franklin, Cevian, Corvex & Pershing Square did not own this and were not involved, and PAH was set up and financed by someone less famous than these folks, would the price trade as high as today? (yep, I still think it's too high). The upside here could be $30 (5.5x from here); it's crazy to say this but there are other beaten down names in the mkt today with a similar if not better return profile. Link to comment Share on other sites More sharing options...
Jurgis Posted February 9, 2016 Share Posted February 9, 2016 The upside here could be $30 (5.5x from here); it's crazy to say this but there are other beaten down names in the mkt today with a similar if not better return profile. If it's not a secret, what other names you have in mind that have similar return? I've looked at PAH and haven't bought. It's hard for me to value expected (as opposed to existing) cash flows based on recent roll-up. Link to comment Share on other sites More sharing options...
Picasso Posted February 9, 2016 Share Posted February 9, 2016 A zero is a possibility. Actually I think that if Franklin & Co weren't involved, this would be trading higher. Those guys are throwing a lot of unnecessary hair on PAH which just isn't going to fly in these market conditions. The founder shares are raping the company with obscene fees, all the hedge fund ownership has seen performance pressures and we'll likely see liquidations of PAH on the 13F's, and we're already trading 4 turns under the acquisition multiples. You can argue they overpaid but probably not by four turns. My biggest worry is that these are win-at-any-cost individuals and Munger has stated many times how that gets you into trouble (just think of VRX). I'd like to say that at the right price I'd be interested but there is that risk of a zero and maybe it's just something to watch and simply shake your head. But I could easily make the case this is worth around ~$10 right now and so I might go against my better judgement and get involved at some point. There are some redeeming qualities behind their strategy so it's not a complete hairy POS werewolf. Plus Tilson just bought more before it took another 30% leg down, so it's probably too early to go long. I'll wait for him to start selling... Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 9, 2016 Share Posted February 9, 2016 Jurgis, I dunno, anything that has the words 'coal', 'metal', 'energy', 'oil' or 'MLP' in the business description. CNX, SXC, AA were three that were in my inbox. SUNE was one that I looked at but gave up trying to understand. Then there's ESI and some other for-profits. LF was a prime candidate for a 5x but ended up being a 1.2x or something.. I am not the best person to evaluate the risk/reward in those sectors though, so I'd be cautious. Link to comment Share on other sites More sharing options...
Jurgis Posted February 9, 2016 Share Posted February 9, 2016 Jurgis, I dunno, anything that has the words 'coal', 'metal', 'energy', 'oil' or 'MLP' in the business description. CNX, SXC, AA were three that were in my inbox. SUNE was one that I looked at but gave up trying to understand. Then there's ESI and some other for-profits. LF was a prime candidate for a 5x but ended up being a 1.2x or something.. I am not the best person to evaluate the risk/reward in those sectors though, so I'd be cautious. I don't want to derail this topic, so probably we should move this elsewhere if there is any interest to continue... But anyway: IMO opportunities in energy/coal/metal/etc. that have 5.5x upsides are all pretty much "hail Mary" high-BK-likelihood companies. There might be one or two small caps that are real opportunities, but not many. Companies that are highly likely to survive are mostly trading at 2x upsides or less. If you really think PAH is 5.5x upside, it's probably a better deal (vs. risk) than similar return opportunities in those sectors. But that's just MHO. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 9, 2016 Share Posted February 9, 2016 Jurgis, You're probably right. "Hail Mary" stocks = basically same thing as a levered equity stub. As an aside, I've traded in and out of ZINC several times.. Catch the bottom-tick, make a 50-100% gain in a matter of days/weeks, rinse & repeat; this made me money each time.... until the last time, when it dropped from $1.40 to $0.65, and I've given back most if not all of the gains from trading ZINC.. So you would think that I have learnt my lesson on getting into levered equity stubs. Perhaps that's why I don't currently own any of these names that I've listed. Link to comment Share on other sites More sharing options...
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