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Yeah pretty simple: mezz preferreds have a mandatory convert next May so they are taking offers on the different pieces of the company now. If they are successful in selling the entire company to a single buyer the preferreds are a goose egg
($0). If they sell the pieces then the preferreds are worth $25. It will be difficult to sell the different businesses as one.
If they don't sell, then the mezz converts and the preferreds will be in the pole position but who knows when you'll get your money.
By this time of year the company had already released their 2q financials so maybe they are up to something else.
They also go to court in September in the Davis lawsuit. They guy holds 2.5m shares of the preferred (if memory serves me correct). So I think they are unlikely to do a tender without him onboard.
Yes. I tried to retract my comments but couldn't. They are affiliated companies.
Ummmmm, there isn't enough value to pay out par plus accrued?
8.9% div yield at $23.875. Likely to get called with the high costs of capital on these.
Should trade ex-div today.
The current market price is within the range of my expectations that I've posted.
Regarding your third paragraph, it may be true the past that there was a "fact pattern" around downstream assets but those transactions occurred before the April 14th exercise of the warrant agreement.
After the exercise those 106 hotels aren't downstream of Grace. The FAQ is pretty clear on that.
I guess if you believe something else then you should be buying shares hand over fist at these levels.
Very simply:
$325m allocated purchase price
-$76m of which is ARC preferreds
Leaves $249m cash
Less $158m mortgages
Leaves $91m cash
There is the 3% interest that is worth $7m cash and $11m ARC preferreds
You now have $98m in cash and $87m in ARC preferreds, mezz debt of $50m, $86m in accrued divs, and $146m in preferreds.
Most of the 3/31/14 cash/receivables well be used to meet current liabilities.
It's all public information.
Before someone asks why Whitehall/GS would screw over their own preferreds keep in mind that for every dollar they avoid paying out to the preferred shareholders, yes they give up 58.8 cents but gain an additional 41.2 cents. It's just going from one hand to another.
With a payout of the accrued interest, PDF will more than get their investment back and then some.
Historical basis means much less than future return expectations. The bottom line is that the IRR will decrease the longer they hold onto a security that is returning on a yearly basis 8%.
Furthermore, the goal of a private equity fund is to realize a gain as quickly as possible because that's how they get paid. To suggest GS would prefer to retain the ARC preferreds to defer long term taxes all the while deferring their carried interest didn't make a bunch of sense.
If they were really concerned about taxes (taxes paid by the LPs, nonetheless) they works figure out a way to avoid paying ordinary income on the accrued dividends. I urge anyone to show me an analysis that there is enough value to cover par let alone the accrued.
Me thinks that Grace will pay the accrued, then pay a dividend to the equity holders with the remaining cash. Grace will get stuck with the ARC preferreds, the mezz debt and the Grace preferred.
If you don't think this can happen, after deferring the non-cummulative preferred SKRUF paid a one time dividend of $5m then paid out +$100m to the equity holders Mass Mutual & Cerberus.
Whitehall is not concerned at deferring long term capital gains taxes and more interested in maximizing the IRR and getting paid which they only do when a transaction is realized. Clipping an 8% coupon on a going forward basis will certainly lower the +100% IRR PFD Holdings has realized.
It's simple math that there is not enough cash left over to pay all the accrued interest let alone the par value. I urge anyone to demonstrate otherwise.
But you bring up an interesting thought and an assumption that I made was that the ARC preferreds would be a listed security. It may not be which means that Grace may hold onto the security, payout the dividend as a dividend on the Grace preferreds. However the payments won't cover the preferred divs.
Not really stealing. They were given a warrant to purchase 106 hotels at what I assumed is the cost of debt. They got this in return for forgiving debt and a cash contribution totaling $735m.
It's a fact that around $1.6b of the purchase price is only 3% owned by Grace (with $976m in debt).
The other 20 hotels, debt and mezz are held by Grace.
My prediction:
-60% of existing shares replaced with new ARC preferreds that are mandatory redeemed over 4 years
- $13.50 payment on remaining shares
- no accrued interest paid
This puts a recovery value at a little over $21/ share.
So to answer your question, I'm not buying or selling and hope that I'm wrong.
There is potentially upside to $28/share depending on who paid the principal balance down for the April refi.
You're smarter than that. We both know that they aren't getting $1.425b in cash:
Represents an adjustment for pro forma capital structure, see table below.
Face Amount
(in thousands) of Instrument
Mortgage debt assumed by ARC Hospitality in this transaction $ 865,000
Mortgage debt assumed by ARC Hospitality in this transaction 111,000
Class A Units 451,000
Common equity 498,000
Total $ 1,925,000
http://www.sec.gov/Archives/edgar/data/1583077/000114420414034823/v380013_ex99-4.htm
Unfortunately names don't really matter much and it's ownership that matters. Grace I doesn't own any of Whitehall or Goldman Sachs and only a sliver of 106 hotels of those in your reply.
Additionally, they are not paying $1.45b cash either. In fact they are only paying $498mm in cash and are assuming $976mm in mortgage debt.
Simply false. W2007 is receiving 3% of the difference between the allocated sales price of the 106 purchase option hotels less the $976mm mortgage, the allocated sales price of the 20 hotels delivered free and clear, and the prorata amount of $451mm in preferreds ARC is issuing.
Additionally, the preferreds are carried at $17.50 & $17.00 so the liability is about 50% higher than your stated.
Do you have the name of the CMBS for the 106 hotels? Thanks in advance.
I guess we'll see. Like I said, part of the consideration is newly issued preferreds.
Please be more specific. What doesn't make sense?
It is your opinion that ARC is paying $1.925b in cash for the assets?
I'm not trying make enemies either but it's clear that roughly 20% will be exchanged for ARC debt/preferred securities.
I hope your expectations includes getting some preferred shares in a new ARC entity.
I'm not so sure that Grace I has any ownership of WNT with the exception of the 3%. These other 97% may be held by a Whitehall affiliate but that's outside Grace I.
I agree on your "good money after bad" PFD Holdings comment but they are set to gain ~$2 for every $1 they lose on that investment.
That's my point- the equity isn't in Grace I but in WNT Holdings.
While EIs comment is correct and may feel right to you, there simply isn't any equity
(or very little equity) to distribute.
Based on the carrying value on the balance sheet I think it's an at-the-money option to purchase at the mortgage amount. Therefore, no payment to exercise. I'm sure there was a working capital payment, etc though.
Regardless, a keepwell agreement only helps if there are assets.
After the deconsolidation of the 106 "purchase option hotels" which was exercised by WNT Holdings after the refi I get very little, if any, equity in Grace I. This includes consideration for the accrued dividend and par for the preferreds which in total is approximately $225mm.
My point is that the preferreds DO NOT stand in the way of Whitehall monetizing its investment because WNT Holdings basically already did that.
I've bought all over the place. You need to take liquidity when you can.
Check this out: http://m.us.wsj.com/article_email/SB10001424052702304157204579471460098535586-lMyQjAxMTA0MDMwMTEzNDEyWj?mobile=y
I've bought all over the place. You need to take liquidity when you can.
Check this out: http://m.us.wsj.com/article_email/SB10001424052702304157204579471460098535586-lMyQjAxMTA0MDMwMTEzNDEyWj?mobile=y
I know if no institutions or anyone who owns. The security is extremely illiquid and any seller will push down the price. Whoever is currently selling is sick of waiting and sees other opportunities.
To clarify, I'm not saying they don't have an exit strategy but saying that they have no exit under the current structure.
I'm also going to predict that they unwind Orkney II by the end of 2015.
Pretty simple. They have no exit strategy. They can't sell the entire thing or pieces and they are trying to maximize value before the mandatory convert. That's why they bought the common and did the tender. My guess is that they tender before the convert which is May 2016. Then after that it's a waiting game until a liquidity event.
They can't tender until after the lawsuit is settled so that is a big determinant. $18 is my guess and I'm happy to take liquidity.
Realistically you need to look at a preferred with no coupon and a redemption at $25 in 2018. It's it worth the wait?
You should have sold at $16! There have been plenty of opportunities to buy well below that price.
Not sure if you noticed but in the last two reports the company stated that they are in contact with regulators and ceding companies about assuming new reinsurance risk.
Otherwise nothing too interesting. Preferreds still out of the money in a change in control event. Lower interest rates are helping them. 2 more years until the mandatory convert.
You have anything to say?
You should have sold at $16! There have been plenty of opportunities to buy well below that price.
Not sure if you noticed but in the last two reports the company stated that they are in contact with regulators and ceding companies about assuming new reinsurance risk.
Otherwise nothing too interesting. Preferreds still out of the money in a change in control event. Lower interest rates are helping them. 2 more years until the mandatory convert.
You have anything to say?
Good analysis
I found it. N.Y. state supreme court.
Have you found the Davis lawsuit anywhere? I checked PACER and couldn't find it.
Money good in 2019. Haha.
Wow that's huge. Congrats.
Accumulating shares below the tender offer price. Wash, rinse, repeat.