Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
No need to pay the Pref, you just leave them were they are. There is no contractual right to pay them if you sell. If MM and CC sell their securities, or sell the co's assets, the buyer will factor the preferred (the cost of the coupon, when and if it needs to be paid) into their numbers and deduct that from the purchase price. In essence, preferreds would have no grounds for a lawsuit against the board if they sell it and they get nothing from their purchase price. Common holders would. It this makes sense to hold both SKKRF and SKRUF at the same time, IMO.
SKRUF has a $25 face value, with a 7% and change coupon. Of they sell the company the new buyer is stuck with it, so it just becomes a question of time. he only way it would be worth less is if you sell it for less. That pretty much says it all, IMO. Just hold on ....
The only reason they would offer something to common holders in the event they find a buyer for $700 million would be to avoid lawsuits (or, to put a more positive spin on it, because they are ethical individuals). To the extent the company is not in bankruptcy and making some money, it would be hard to justify selling it and giving common shareholders nothing, as by waiting they might actually get something some day. At $0.50 per share they would give up $30 million, which is a reasonably low amount in a multi-hundred million dollar transaction, and I bet they could easily get shareholder approval under that scenario. If they enter bankruotcy it will be a mees that they would, IMO, gladly save themselves for that price.
Well, I think two years is a function more of when I believe a sale is likely to take place. Again, I see the end result here for everyone as a function of CC and MM's patience. They continue to be well rewarded by holding this through the restructuring, and it seems to be that is likely to continue for a while. They should be able to clean up some of the XXX reserve mess with Ballantyne and the Orkneys based on the recent run-up in RMBS pricing. We currently only get to see a portion of that having a direct positive effect on SKRRF's books, but the additonal info provided regarding reserves in the securitizations is highly telling: there are ample assets at this stage.
How long will the convert owners wait to push for a sale? It seems that two years from now is starting to look like a bit too long. They could still buy back some stuff, and get another $100 million or so in additional equity through that. (That could happen in a few quarters). Will holding the RMBS portfiolio longer provide much more stability? Nah, I think that is all taken care of based on the XXX reserve adequacy. I would thus shorten my expectation to a year ... at $0.50 for the common.
Just a guess, though.
EI, how do you get to the $8.75 to $10.00. It would be obviuos to think it would be higher than the recent market tradin range ($6.50), plus a bit more, but $10?
The hierarchy of the preferred is the same it has always been. It is just that the accountants have a strange way of presenting things. I believe a bunch of people have been led to err.
If the company were buying back preferreds, I believe it would do so through privately-negotiated transactions and/or a tender. There is very little volume in the open market, any sizeable chunk can change the market price in no time. I am a bit dissapointed that management has not provided more updates on relevant events, but as far as the company's business is concerned I see not big vhanges UNLESS there is a restructuring of the equity base and a recap/merger. I still do not believe MM / CC will just sit and wait, and the purchase of the Orkney notes is probably is a step in the right direction.
Because it is held in firmer hands? There is virtually no volume in SKRUF. Look at the spread - more than 20% of the value. It went down like crazy (it got to 50 cts, I believe). What I believe is happening is that volume creates volume, and a lot of tech people out there get to look at SKRRF because it shows up on their screens with daily movement. With SKRUF, there is very little to analyze, no interest.
I still believe the expedted upside on both is pretty similar (4 to 5 fold on each). SKRRF has more risk, as it is a junior security. It also has unlimited upside. Most people here are probably thinking that good news will move the stock up quickly because of volume, wheras the pref will move slowly.
Hope you find the above helpful.
I would have originally thought so too (i.e. a relatively early release, compared to the previous year's), but it might just work in their favour to hold on to those numbers until they have figured out the next move. It has been to quiet, and that to me means they don't want to say anything now.
I am hoping that when they do release they do it together with a clearer strategy for moving forward.
The problem I see with them giving less value to shareholders is the lack of a valid reason for them to back out of their original commitment, which is to have the $600 million convert at $4.00.
They can always go back and offer shareholders $0.20 per share and try to get them all out of the picture, but I see it as unlikely that a $14 million payout (that's the value at 20 cts) would silence all people involved. I have read studies about the "nuisance value" of worthless stock, and in this case with deep-pocket controlling shareholders I can see it at 5% of total value (i.e. the $600 that MM/CC invested), which comes to about ... $0.50, or $40 million.
The board, in any event, could be liable if they make decissions that favour some shareholders at the expense of others. A sale to a third party now that nets current common shareholders $0 would be taking away the option value of the stock in exchange for a current payout to MM/CC that they have little or no claim to from a purely legal perspective. Tough situation for the board, but they probably don't want to face another shareholder lawsuit.
Hope the above make some level of sense to you.
Under the current capital structure, it is unlikely that SKRRF will be "in the money" from a book-value perspective for some time. It is currently some $550 million away from there, and it is difficult to see how such a significant amount of money will ever be made out of operating earnings (if any). Significant additional write-ups are also unlikely, IMO. As such, the only way the common is likely to see any value is either:
i) when the convertible preferred converts automatically (in six-year's time), at which point there will be aproximately a $1 value per share on a book-value basis; or,
ii) if CC/MM decide they want to sell and/or restructure in order to have a stronger balance sheet, at which point whatever gets accepted by the majority of shareholders, or the independent members of the board, is likely to be the final value. My best guess at this point is about $0.50.
In any of the above cases there is clearly significat updise, the question is when. Even 50 cts in a couple of years is a decent-enough return.
Obviously the above analysis can prove to be wrong, but I haven't seen anything better being posted.
Any comments welcome.
Maybe I am just making a big thing out of what might appear to be details, but I am VERY impressed by the way the accounting can - and has - lead to bad decissions at SKRRF, and therefore can't keep it out of my mind. First, the "mark-to-market" swings, then the "deconsolidation", and then the apparent discrepancies between the legal strucuture for certain relevant contractual agreements and the way things are presented to investors. BIG differences in valuation!
I think I paid somewhere in the range of $4 for the stock at some point. I was up from there but did not sell, held on and saw it plummet from August 2007 on. The sub-prime losses took me by surprise 100%.
It's amazing ... you restate things that you think are correct, and you don't revisit them. Yes, you THOUGHT you covered the scenarios pretty clearly, but ... I amd pretty sure you are not a lawyer, are you? You know your accounting, but have you gone over it the way a lawyer would. What do you think the lawyer would say of your $0 scenario?
At $500 an hour for a decent guy at a good law firm, you can't be more than a few thousand away from some valuable info.
OK, what do you all believe the value of the Convert is right now? (That is MM and CC's pref's)? Best way to judge it might be book value, right? How much is that? And then, how the hell do they get it out of the company? Do they wait 7 more years, then convert? What is the alternative? How do they fare then? Does anyone get any value under that scenario?
Simple questions. Would anyone care to guess? So far, I have not seen a correct answer.
Forget about wriring new business, Ch 11. Those are, in my mind, secondary issues. MM and CC want their money back! Bet on THAT one!!
Yes, but you are not really trying ... question your assumptions, start with a fresh look at things.
The company is a mess, but there deffinetely is value there. I believe it is mispriced.
What happened at Fremont?
Wrong assumption.
Dig deeper.
I will break my silence for you, AKAPAK, as you seem to be more direct than the rest.
Your post includes a major assumption that is outright wrong.
Hope that helps.
I will henceforth STFU.
I will be back when the reasons why I do not clarify my position are no longer relevant.
But I will keep on reading ...
I don't thnk you've gone through the potential scenarios to try to estimate in detail how the play out. In a number of them, I find that the results can be very surprising. Pretty much all of the information is out there to figure it out. That's as far as I am willing to go for the time being.
My overall position with respect to SKRRF and its short-term perspective is in line with most of your thoughts and those of others on this board. The numbers for the third quarter are VERY encouraging, primarily because of the "operating" profit.
With respect to the MM/CC position, I do think they will do more in the short term than simply tying to get some cash out. I think the need to, as they are very far away from break-even (not enough value there for them yet, IMO). By capitalizing the ORe debt and renegotiating the conversion price they could set te company up for some level of new business (maybe small, but very meaningful at this stage). CC does not need money back for a LONG time (these funds can normally hold for more than 7 years). MM can hold forever. Furthermore, there are significant NOL's that could be utilized, but not if they sell. As such, I do think they will aim for something more than run-off, and they will likely try that in 2010. (Even just shielding the ORe purchase from income tax could easily be worth $70 million, based on guesstimates of purchase price on this board).
If they ever had an opportunity to wipe out the common, I think that was before the last three quarters, when the company was pretty much given up for dead. They did not do it! Now they might find it difficult to justify not giving other shareholders something. When they are done buying back SKRRF's debt, they will turn unto the common share issue, IMO.
And then, even if I am wrong regarding all of the above, it seems that all of you are missing one additional thing ...
Gentlemen, I assure you in due time you will give me a lot of credit. I have been invested here for three years, and have gone through a LOT. Otherwise known as podmic. Best regards.
The flaw is not in your calculations. It is still, however, relevant from a broader perspective.
I would in no way want to suggest you are wasting anybody's time, to the contrary, I believe you are adding some very needed formality to the discussion.
Nice analysis, although partially flawed (and I will positively NOT tell you why, as it would spoil the fun).
But the time will come when you will realize that. And it will be too late.
And I hate to be one two, but:
i) it would be very difficult for the board to approve a sale with the common getting nothing ... unless the company could not go on existing otherwise, which is now less likely the case;
ii) you are making a BIG mistake in your analysis (obvious from your post), but I will NOT correct you for the time being.
But you seem to be right on otherwise.