Global Value Investing

[MNT]

Hi Bradford,

Just wondering what are your thoughts and relation to your posted reply? My numbers are too pessimistic?

With reference to my previous post, my $400m p.a free cash flow statement may not seem to hold its weight now as mentioned, especially if the decline worsens. Thats why I think its flawed.

The funny thing is that Morgan Stanley projects a 18% p.a decline and yet has higher FCF at the tail end, i.e 2015-2016. I suspect that on top of adding the synergies of %175m p.a, they also put cost increases at a very steep decline, hence overall fcf and ebitda numbers are actually stable when they should be declining. The cost assumptions are very sensitive, a 1% change may result in losses at the tail years.

Also the reason why my later year fcf and ebitda is low is because there will no longer be any assets to depreciate and amortisation of intangibles is on a income approach, which means as the years go by, amortisation gets lesser. Im not sure how MS plugs in the numbers for this but one things certain, there will likely be no residual PPE at 2014/15 thereabout. And my assumptions for capex are very low, so increasing it will lower cash flows again.

The dex one note posted below is not relevant as going forward the new amortisation and cash sweeps will be in effect which effectively about under 2/3 on average of free cashflow will be used for amortisation/ paydown of debt, 1/3 for interest payment and the rest discretionary.

Also the numbers you posted is not FCF, thats the LFCF reported, i.e post paying of interest.
My LFCF numbers are:

2012 2013 2014 2015 2016
- 522 417 307 195

In fact I rarely look at ebitda cos ultimately capex is a real cost especially for a firm with fully depreciated assets and intangibles. A firm with depreciation but no capex is like a self liquidating entity. I mean some business may survive with minimal capex but im sure they will need more than just the $47M spent in 2011? I am not close to the company to know if theres value for those spent assets and intangibles so please let me know if you do?

The bare minimum you need is $300M of leverage free cash flows per year for the next 5 years after 2016 to retire the combined $1.5B of debt, assuming they do successfully paydown $1.5B from now till 2016. This means about $450M p.a of free cash flows and $500M p.a. for the latter years will be needed post 2016. So anything below that will mean equity wipeout. How likely do you think it will hit that number?

I personally do not take comfort into whether Kyle Bass, Prem, Shultz or John Paulson bought into it. By the way, Paulson holds a stake bcos of debt to equity conversion in the previous round of restructuring, likely the same for Shultz.

I crunched the numbers on pen and paper so cant send it over, but if you need to compare numbers just give me a buzz? Need someone to enlighten me and if ive done something wrong somewhere.



http://www.businessweek.com/articles/2012-03-22/the-golden-allure-of-the-yellow-pages