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manipulators playing a game ; painting board lower with 100 shares trades from one person's account into another! hold on. Dont fall into this trick!
Interesting reeding ...
IT IS COMMON KNOWLEDGE that directors should act in the best interests of their corporation; however, where the interests of the corporation's different stakeholders are not aligned, directors can face complicated decisions. The board must often choose which constituency'sinterest will dominate. While in the sale of a company, this issue is relatively clear--directors obligations are to seek the best price reasonably available for the stockholders, issues can nonetheless arise when the interests of common stockholders conflict with those of preferred stockholders. A recent Delaware case deals with this situation, and reminds us of the primacy of the common stockholders.
In re Trados Incorporated Shareholder Litigation involved the saleof Trados Inc. to another company. Trados had issued preferred stock to various investors who also appointed four of Trados's seven directors. The preferred holders pushed for a sale of the company; ultimately, a deal was signed with a purchase price that would pay out the bulk (but not all) of the preferred stockholders' liquidation preference and provide Trados's management, which included two directors, with significant bonuses. The common stockholders, on the other hand, would receive nothing from the sale. Not surprisingly, some of the common stockholders sued the directors, alleging that they had negotiatedand approved the sale without considering the common stockholders' interests and, instead, were only looking out for their own and the preferred stockholders' interests.
The Chancery Court denied the directors' motion to dismiss the common stockholders' suit, and in the process illustrated two important lessons.
First, the court found that six of Trados's seven directors had a conflict of interest or otherwise lacked independence, so their actions were subject to the exacting scrutiny of the entire fairness doctrine. The two directors who received management sale bonuses were "interested" because each received "a personal financial benefit [...] not equally shared by the stockholders ... that made it improbable suchdirector could perform his fiduciary duties without being influencedby [his] overriding personal interest." The other four directors also were found to be not independent, not because they had been appointed by the preferred stockholders, but because a substantial part of their livelihood depended on the preferred stockholders (they were allemployees, directors, and/or owners of the preferred stockholders). The plaintiff stockholders therefore satisfied their burden of establishing a lack of independence by showing that such directors were "beholden to a controlling person or so under [the controlling person's]influence that their discretion would be sterilized." And, as often is the case, this conclusion lead to the result that the directors lost their motion to dismiss and will have to proceed to trial (or a more expensive settlement).
The second lesson learned from In re Trados is that when the interests of the preferred and common stockholders conflict, directors' fiduciary duties run to the common stockholders. While the preferred stockholders in In re Trados asserted that their interests were in "obvious alignment" with those of the common stockholders in obtaining the highest price possible in the sale, the court was persuaded by the plaintiffs that the real question could instead be whether the interests were aligned regarding whether to pursue a sale of the company atall or, instead, to continue to operate the company. Reframed this way, the interests of the common stockholders would not have been aligned with those of the preferred holders because selling Trados left the common stockholders with absolutely nothing.
I think there is potential upside to BV from the VIE's (I see them carrying approximately $200 million in losses there that will most likely not materialize), plus the value of NOL's. There might be some significant downside potential that we might not know about because of loss development, but that might well be taken care of by future profits and potential savings in admin costs if merged or sold to another reinsurer. I can see a $1,000 "value" by end of 2011 if they pursue a stategic transaction, but it will remain to be seen if there really is a buyer at that level.
Thanks for the clarification.
As for the dividend, that would be huge for the preferred holders and insignificant to the company.
Let's take a look at earning potential, because $80mm a quarter in mark-to-market gains are not sustainable (I know- I've been saying this for the past 2 quarters but the 4th quarter will be a wake up as rates have increased). Under the best scenario from an income statement perspective, the run-off operations excluding the unrealized gains are break even.
The current yield on the investment portfolio is around 4.5% which covers a portion of the claims.
50% of the holdings are in fixed income securities that will most likely not go up in value any further (IG).
The other 50% is in RMBS with a "YTM" of 12% (assuming a certain CPR, default & severity). Strip out the income and you are looking at 8% growth.
I just cant see how the BV gets above $900mm. Please convince me otherwise. What am I missing?
We are in complete agreement as to the facts you state. That gives them the ability to sell the company's assets, and maybe even pay themselves. Their security is senior to the common, so to the extent they take a loss through an arms-lenght transaction, there is no remedy. But if they do not .... Well, even in liquidation scenarios the common normally gets a bone thrown at them!
This is even worse than expected! If the company can't be sold, what's the current value?
And I would focus on the word "currently." Its way too earlier in the game to even try and sell it.
Good color- thaks for the clarification.
Thanks for the clarification. However, they have 6 more years for this to happen.
Take a look at how voting agreements work with mergers.
If a majority of the shareholders (MM and C that have 66 2/3rd of the voting rights) agree to vote a certain way there will not even be a proxy for the other shareholders to vote on (you get what is called an "information circular"). There isnt even a shareholder meeting required!
Not only do they have a majority of the board seats, they also have a majority of the voting rights!
http://www.articlesbase.com/law-articles/what-is-a-shareholder-voting-agreement-and-when-can-it-be-enforced-482195.html
With respect to your 6 of 11 statement, I should probably ask if you have ever heard of Floss & Harbottle?
Dividends stop accruing 5/07/12
Upon a change-in-control event, the redemption price of the Convertible Cumulative Participating Preferred Shares is an amount equal to the greater of (i) the stated value of the outstanding Convertible Cumulative Participating Preferred Shares, plus an amount equal to the sum of all accreted dividends through the earlier of (A) the date of payment of the consideration payable upon a change-in-control event, or (B) the fifth anniversary of the issue date of the Convertible Cumulative Participating Preferred Shares, or (ii) the amount that the holder of the Convertible Cumulative Participating Preferred Shares would have been entitled to receive with respect to such change-in-control event if it had exercised its right to convert all or such portion of its Convertible Cumulative Participating Preferred Shares for ordinary shares immediately prior to the date of such change-in-control event.
Page 22 paragraph 6
http://www.scottishre.com/pdf/SRGL_2010_Q3_Financial_Statements.pdf
Read the same thing.
Redemption of the Convertible Cumulative Participating Preferred Shares is contingent upon a change in control. Since neither liquidation nor a change in control is currently probable, the accreted dividends have not been accrued in our consolidated financial statements.
Page 22 paragraph 3
http://www.scottishre.com/pdf/SRGL_2010_Q3_Financial_Statements.pdf
h_man_investor, those words are in the Q 3 2010 financial statement on page 23,paragraph 3.Since I was unable to copy and paste those words I typed them.
You are wrong in the calculation of accrual to the convert. It stops after five years. They are capped at around $60 million more, or $216 million ($816 total). After that their upside is gone, unless they convert. What do they do then?
As to them paying dividends on the preferred, they might not, but that hardly has any big impact on the final outcome. (It's only around $9 million a year).
Says who? Who are you quoting?
MM and C have 6 of the 11 Board seats. They are not there to look out for the common shareholder but for their investment.
As it stands, assets are greater than liabilities by +$716,850. They have a liquidity preference of a current $748,100 (and growing) until a mandatory convert date of 5/15/16.
Lets say that book value grows from $716,850 to $1,000,000 between now and 5/15/16- a 6.1% growth in the portfolio which is possible under the best scenario ($50mm a quarter in earnings). Since the liquidation preference grows by 7.25% per year it will be $991,000.
They can either sell the company lets say for book value and get $991,000. The preferred gets $9,000 and the sh/h get $0.
Or you can convert your stock, the preferred get seniority of $120,000 and you get shares with a book value of $604,000. Which one would you choose?
It all boils down to whether or not the company can get sold. And that boils down to financing.
I'm not sure if I mentioned this before, but mgmt has indicated to me that although they may be allowed to pay a dividend on the preferred this quarter, it is there intent not to in order to conserve cash.
Bwana12, I respect your opinion but to date you have given no details to how/why you think M and CC will pay anything to the common or preferred sh/h. Please enlighten me!
H man, although in general I am in agreement with you calculations, I find that the scenario in which the common gets wiped out in reality does not exist. How will they get to the point where they sell the company and get paid back their "preference" and give nothing to the common?
"since neither liquidation nor a change in control is currently probable"I believe that statement provides hope for common shareholders, if the company continue to be profitable.
h_man_investor,thanks for the information you provided.
insomniac,thanks for your desire to help.
H Man thanks for the clarification... In my defense, I attempted, or so I thought,to EDIT out my answer to Genlou. evidently my attempt was futile.. Sorry for what seems like an inaccurate attempt at an explanation.
Huh? Please walk us through your math.
As far as I can tell the numbers in you numerator AND denominator are incorrect.
I can't believe that everyone continues to ignore the liquidation preference of the mezz equity. To review, if there is a change in control MM and C get the first $748mm. If there is a liquidation or wind up, MM and C get the proceeds after the preferred shareholders. Including these, you get a book value of -$72.1mm. Excluding then you get $31.3mm or $0.46.
I will say it again, why would MM and C go from a senior position to a junion commen equity position and reduce the value of their investment? MM and C will do whatever maximizes the recovery of their investment.
Also, without the benefit of unrealized gains in the portfolio, from an operating basis the company lost money in the quarter (roughly -$5.3mm). There is probably some more gains to get out of the MBS but not corporates!
insomniac,thanks so much for your help.
Yes ... Outstanding shares /Shareholders equity = 77cents approx.
Does SKRRF have positive book value now?
Profitable quarter.
Earnings report out.
HAMILTON, Bermuda--(BUSINESS WIRE)-- Scottish Re Group Limited (Pink Sheets: SKRRF) ("Scottish Re" or the "Company"), announced today that it has posted to its web site its consolidated unaudited financial statements for the three and nine month periods ended September 30, 2010. For the three month period ended September 30, 2010, Scottish Re reported net income attributable to ordinary shareholders of $82.4 million, or $0.38 diluted income per ordinary share, as compared to a net income attributable to ordinary shareholders of $201.9 million, or $0.92 diluted income per ordinary share, for the prior-year period.
The net income attributable to ordinary shareholders for the three month periods ended September 30, 2010 and 2009 was primarily driven by $89.0 million and $191.1 million, respectively, of net realized and unrealized gains associated with the Company’s invested assets.
To view the financial statement documents, go to Scottish Re's Web site at www.scottishre.com
Hey! I think today is earnings day after the bell.
That seems to be everyones hunch.
Does it look like earnings will be coming out after the bell on Friday?
Has anyone spoken to the new pres or to Dan Roth?
EI, great job on PFOB. Not expecting anything quick here. were only stating that comments normally only happen in a certain time frame around news. Got shares stashed away and happy.
Is it 5/07/16 yet?
SKRRF is not BRK-A or AIG with breaking news every week or within days.
Like many, maybe half, of my investments, I go in expecting the turnaround to take one one year. I am surprised when it takes less than 6 months. This one will take longer.
No one is really going to have to wait until 5/07/16 to be profitable as long as the purchase price is close to today's ($.20).
I think people only get excited here for 3 days after
1. PR
2. Earnings
In between its just watch the accumulator every now and then.
I hope you/we make a bundle.. Frankly I dont think anyone gives a damn about Skrrf.
New to Board. Would appreciate some knowledgeable posters would help with some of my confusion. I hasten to add I went thru the 2nd qtr release. Much is beyond my ability to understand.
The company says it is in run off. I interpret that as a company that is winding down and at some point will distribute such assets are available to share holders. Yes?
Any concept of a time frame?
Any idea of current BV?
Any concept of future BV?
I own RAMR which has many similarities. Any one own both?
Thanks.
Im gonna guess they make 26 cents a share from the investment portfolio for the quarter.
Did our buyer from a few weeks past go away permanently?
Third quarter results were posted on 11/20 last year. Any reason to believe that they will not be about the same time this year? I think the paint is just about dry.
Hoping for news of a share buy back.Which would cause an increase in share price and confirm to shareholders SKRRF is a good investment.
We need some Good News..!!!!!!!
I also do not understand what they are waiting for, other than the right moment to sell a large block of Subprime RMBS's. ALL the value to Pref's, Converts and common is lying right there.
Don't foget CC has $700 million face of Orkney Re's debt. Most of the holdings are 2006 vintage, AA's, whose value will become much clearer in the next year or two. CC has to be one of the largest holders on RMBS and private-issue home mortgages (via GMAC). They know the business. Also, one has to consider two additional sources of value: NOL's and VIE's. I can see $300 million right there. How will they play those cards?
Getting back to my question (which you did not answer): what is the upside from here for CC versus pref's or the common? How do avoid giving significant value to the common? All the common is worth $13 million! Versus $600 for the Convts! C'mon, even at $1.00 per share it makes sense for them to buy the common out, IMO.
"What are they waiting for" is an easy question to answer. They are waiting for the book value to continue to increase effectively earning the discount rate if they sold. Its a waiting game and they will maximize the recovery of their investment. Since they will not be writting any business its hard to imagine a scenario where they would want to be common shareholders.
I agree on your point of resetting the conversion rate but that will only increase the number of shares they convert into. The conversion price will always equal $600mm- if the conversion price decreases the number of shares will increase. This should not affect the preferred but will dilute the common more and decrease to book value.
It would be a different outcome.
There is another highly-likely scenario. Resetting the conversion value below $4.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=43838567&txt2find=conversion
You have to ask yourself one question, "what are they waiting for?"
Yeah- they have 6 more years. Their conversion price currently stands at $4. You said book value is $2.31. Why would they settle for a mandatory conversion that destroyed value for them?
You say "absent liquidating the business or giving up control, conversion will occur." That's a BIG detail you're skipping over.
I'll say what you said the opposite way and let me know what you think:
"Absent a mandatory conversion, the company will be liquidated or sold." Totally different outcome.
They will try their hardest to sell the company before the conversion. It's simple to buy a company in run-off- you simply discount the expected cash flows and you finance the purchase.
Didnt have time to put the numbers together but certainly wouldnt have guessed so high!
Good news is that operation earned +5mm in income for the quarter. However, that would increase the shareholder equity significantly enough.
Unrealized gains will not be able to stay at this pace. However, there should be some gains as RMBS is refianced, etc. 50% of the PPIP money still needs to be deployed.
Realistically (not theoretically) the book value is at -$104mm considering the liquidation preference.
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As of June 30, 2008, SKRRF (former NYSE ticker SCT) had 68,383,370 ordinary shares outstanding.
BERMUDA
Crown House, Second Floor
4 Par-la-Ville Road
Hamilton, HM 08, Bermuda
telephone: (441) 295-4451
facsimile: (441) 295-7576
email: info@scottishre.com
__________________________________________________________________
MAJORITY OWNED BY:
MASSMUTUAL http://www.massmutual.com/
CERBERUS http://www.cerberuscapital.com/
SKRRF 2Q Results (released 8/20/10):
Scottish Re Posts to its Web Site Second Quarter 2010 Financial Statements
Scottish Re Group Limited (Pink Sheets:SKRRF), "Scottish Re" or the "Company", announced today that it has posted to its web site its consolidated unaudited financial statements for the three and six month periods ended June 30, 2010. For the three month period ended June 30, 2010, Scottish Re reported net income attributable to ordinary shareholders of $78.0 million, or $0.36 per diluted ordinary share, as compared to a net income attributable to ordinary shareholders of $176.9 million, or $0.81 per diluted ordinary share, for the prior year period.
The net income attributable to ordinary shareholders for the three month period ended June 30, 2010 was driven by $83.4 million of net realized and unrealized gains in the Company’s invested assets.
For the three month period ended June 30, 2009, the net income attributable to ordinary shareholders was driven by $133.1 million of net realized and unrealized gains in the Company’s invested assets and the recognition of an additional $59.8 million gain following the satisfaction of certain contingencies related to the first quarter 2009 sale to Hannover Ruckversicherung AG of a block of individual life reinsurance business.
Run-Off Strategy/"Right Side" Balance Sheet Management
Scottish Re stated, initially in the 2009 2Q report (page 12), that the company may purchase in privately negotiated transactions, open market purchases, or otherwise, additional amounts of outstanding debt, non-voting preferred securities and other liabilities. The table below details the right side of the balance sheet on an actual and market value basis. SKRUF was increased from $1.60 to $7.00 ove time. Based on the large discounts detailed below, investors questioned its ability to continue as a going concern. Investors should expect two things going forward: (1) gains on early extinguishment of debt; and (2) shrinking discounts.
Liabilities declined $58 million over the latest quarter, but the market value decreased by $76.3 million. Despite no change in Collateral Finance Facilities on an actual basis, the market value decreased nearly $38.8 million.
Interest Sensitive Contract Liabilities declined by $27.3 million actual, but only $19.5 million on a market value basis.
Long Term Debt is comprised of Capital Trust and Trust Preferred Securities.
The acquistion of Non-Cumulative Preferred below book value would not create income; the difference is a credit to Additional Paid-In Capital.
* | 2Q | 2Q | 3Q | 3Q | 4Q | 4Q | 1Q | 1Q | 2Q | 2Q | Change | Change |
Account | Actual | Market | Actual | Market | Actual | Market | Actual | Market | Actual | Market | Actual | Market |
Reserves for future policy benefits | 1,579,543 | 1,579,543 | 1,543,960 | 1,543,960 | 1,542,639 | 1,542,639 | 1,538,526 | 1,538,526 | 1,518,010 | 1,518,010 | (20,516) | (20,516) |
Interest sensitive contract liabilities | 1,843,353 | 1,510,467 | 1,802,617 | 1,499,341 | 1,518,365 | 1,485,554 | 1,493,164 | 1,460,835 | 1,465,831 | 1,441,386 | (27,333) | (19,449) |
Collateral finance facilities | 1,300,000 | 919,917 | 1,300,000 | 1,019,702 | 1,300,000 | 907,710 | 1,300,000 | 885,057 | 1,300,000 | 846,229 | - | (38,828) |
Accounts payable | 116,244 | 116,244 | 147,896 | 147,896 | 68,921 | 68,921 | 44,818 | 44,818 | 47,726 | 47,726 | 2,908 | 2,908 |
Embedded derivatives at fair value | - | - | 35,732 | 35,732 | 38,557 | 38,557 | 35,527 | 35,527 | - | - | ||
Reinsurance balances payable | 164,850 | 164,850 | 117,874 | 117,874 | 137,597 | 137,597 | 137,985 | 137,985 | 110,809 | 110,809 | (27,176) | (27,176) |
Deferred tax liability | 221 | 221 | 221 | 221 | 50,143 | 50,143 | 48,756 | 48,756 | 47,920 | 47,920 | (836) | (836) |
Long term debt at fair value | - | - | 55,068 | 55,068 | 42,147 | 42,147 | 60,180 | 60,180 | - | - | ||
Long term debt | 129,500 | 14,245 | 129,500 | 22,663 | 129,500 | 32,375 | 129,500 | 32,375 | 129,500 | 42,942 | - | 10,567 |
Total liabilities | 5,133,711 | 4,305,487 | 5,042,068 | 4,351,657 | 4,837,965 | 4,315,739 | 4,773,453 | 4,229,056 | 4,715,503 | 4,150,729 | (57,950) | (78,327) |
Mezzanine Equity | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | 555,857 | - | - |
Non-cumulative preferred | 125,000 | 8,000 | 125,000 | 19,500 | 125,000 | 28,250 | 125,000 | 30,000 | 120,152 | 33,643 | - | 3,643 |
Equity | (646,574) | (646,574) | (444,489) | (444,489) | (229,156) | (229,156) | (129,436) | (129,436) | (51,280) | (51,280) | 78,156 | 78,156 |
Non-controlling interest | 7,258 | 7,258 | 8,168 | 8,168 | 7,668 | 7,668 | 7,908 | 7,908 | 8,359 | 8,359 | 451 | 451 |
Shareholders' equity/(deficit) | (639,316) | (639,316) | (436,321) | (436,321) | (221,488) | (221,488) | (121,528) | (121,528) | (42,921) | (42,921) | 78,607 | 78,607 |
Total | 5,175,252 | 4,230,028 | 5,286,604 | 4,490,693 | 5,297,334 | 4,678,358 | 5,332,782 | 4,693,385 | 5,348,591 | 4,697,308 | 15,809 | 3,923 |
Discount | - | 945,224 | - | 795,911 | - | 618,976 | - | 639,397 | - | 651,283 |
Mezzanine Equity in the "fast forward" mode.
The table below details the impact of the ME conversion as if it occurred at 6/30/10 rather than 5/07/16.
Upon conversion, $555.9 million moves from ME to Ordinary Shares and Additional Paid-in Capital for 150 million shares. The conversion propels the $120.2 million in Non-Cumulative Perpetual Preferred to a more senior position. SKRRF would have 218.4 million shares outstanding. Shareholders's equity would now be $504.6 million on a pro forma basis (compared to $68.9 million). Book value per share would be $2.31. There is some risk that the conversion value could change prior to the mandatory conversion date.
Please note that the ME has a current liquidation preference of $737 million ($600 million par value plus $137 million in accrued and unpaid dividends). The liquidation value per share is $4.77.
* | Q2 | Adjustments | Pro Forma |
Assets | 5,348,591 | - | 5,348,591 |
Liabilities | 4,715,503 | - | 4,715,503 |
Mezzanine Equity | 555,857 | (555,857) | - |
Non-cumulative preferred | 120,152 | - | 120,152 |
Ordinary shares | 684 | 1,500 | 2,184 |
Additional paid-in capital | 1,217,880 | 554,357 | 1,772,237 |
Retained deficit | (1,269,844) | - | (1,269,844) |
Total equity | 68,872 | - | 504,577 |
Non-controlling interest | 8,359 | - | 8,359 |
Total equity | 77,231 | - | 512,936 |
Total liabilities, ME and equity | 5,348,591 | - | 5,348,591 |
SKRUF iHub Board: http://investorshub.advfn.com/boards/board.aspx?board_id=14256
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