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Yes have been through this with Fidelity on multiple securities. It is a designation coming from OTC Markets. Basically any OTC that doesn't file with SEC now being flagged. Also it's not a change at Fido it's a change at OTC Markets. All my brokers stopped trading the same securities at the same time. Not just Syncora. Also e.g. CNTE, a bunch of post-reorgs, etc. Don't know why they got more restrictive all the sudden. It started around Nov or Dec 2016.
Fidelity hasn't been able to help me work around it or do an opt-out.
I opened an IB account to trade the fun stuff.
Management very clearly labeled it as 'non-core' in the annual meeting. So my guess is they are not looking to make strategic moves within Am Rds / grow it.
4Q strategy review happening now, so you never know if changing external env. Makes them rethink.
I'd say it's worth asking for sure
Would think so. Bonds rallied yesterday
Meeting recap. Frankly not a ton of info
Voting
-Signal sent on directors. 54M shares cast, most just for the auditor.
-Directors only got max 17M shares. 8-9M shares withheld on each
Prepared remarks
-Esposito: transition process - "be transparent, smooth orderly. Build on achievements to date. Ensure continued success." "Susan, Claude, and board agree it is the right time."
-Introduced Fred Hnat as next CEO, said he built 10B UK book with "no losses to date" (some questions on that statement)
-Expects board to shrink, and some improvements in disclosure
Strategic review
-"I personally met large stakeholders – surplus noteholders, twin reefs preferred holders, common shareholders" - got feedback
-4Q strategy review is top priority, will incorporate stakeholder feedback
-MTA, regulators still limit freedom of action
Q&A
Q: better disclosure? Compensation? Shareholdings?
A: Not at this time...under consideration... stay tuned
Q: How are we going to monetize NOLs?
A: It's conceivable that we could use NOLs in the insurance subs by actions within the insurance book. Holdco...not possible without new business. Part of 4Q strategic review
Q: MBS reserving?
A: Trends improving (not much more clarity)
Q: stakeholder interests - noteholders vs. common - wrt selling the insurance book?
A: Part of strategic review. Remediation is ongoing. Working to enhance recoveries, could include selling "non-core" assets (e.g. American Roads)
Agree, annually would be amazing. Will be my first question when normal calls start up again
Surprised such a muted reaction. Thought results were strong
Love the commutations at SCI.
REALLY love the Pike Pointe distribution.
Saw some discussion on this board a while ago about the potential of American roads, but think I need to dust this off for myself.
Short-terms news flow, relaxed ownership restrictions
I can see why those with short time horizon may have been disappointed, and tempted to sell or reduce.
In the last few months we received a flurry of good news - but I think it's reasonable to think that the pace of good news is going to slow for a time while management works on next steps. In the meantime, the price is where it is, and with a slower story for a time, the stock price may drift while we await good news on settlements, more commutations, a capital raise, or acquisition.
Long term we should be rewarded.
One short-term boost we could get may be from the loosening ownership restrictions:
If they sell SGI at the prices AGO is willing to pay - is there anything left for common?
AGO's CEO:
Nice catch.
http://www.kekst.com/
Yes thank you for pointing out! Looks like the pro formas are still as of March but for the exchange.
The salvage asset, $91M on the b/s, includes estimated recoveries on some of these settlements, correct? I'm assuming the Lehman settlement is in there but the random $40m one is not (since it had never been mentioned publicly before). That leaves $78m or so for Greenpoint, Macquarie, any others. Hopefully we see more than that.
Wow so I spent too much time doing that. Thanks Denny don't know how I didn't see that.
But good news - I was right. 55m coming out of cash on the asset side, most of it comes right out of the liability side too. So nets out.
$55M payout to bonds / effect on ABV
Working to update ABV with the effect of the TSA and exchange offer.
As part of the TSA, Syncora will be paying noteholders $55M.
Based on my read, this should just be an offset to the "accrued interest on notes payable" line on the balance sheet. So it should net out in any ABV adjustment which already includes that liability. Did others have a different read? Both sections below for convenience.
Even better
And there go some more.... two days in a row can't be a fat-finger. Really wonder what could be going on
Saw that! Was excited - thought it was my order that filled. I had done the same. Sadly... my GTC order had expired and I lost track
Nice early monetization though - good for you
Fido just changed their rules and widened the net on OTC stocks you can't buy. Basically anything that otcmarkets.com has on their caveat emptor list for noncurrent financials. This includes any company that doesn't file with the SEC. I was first alerted to this change when I tried to stink-bid BGRP after earnings.
It's a shame too - I like Fido, but that's 2 of my top 5 positions I can't add to. Ironic too, given the nonpublic VC stuff they put in some of their mutual funds.
I think long-term I kind of view this as a grow-topline-with-GDP kind of company.
Over the next couple years though there should be some things management can do to hit mid-single-digit growth
- Add categories to the Bluestem platform
- Increase private label penetration
- Grow out the employer-based credit product
Additionally there are some reasonable bottom-line opportunities I know management is focused on:
- The usual merger synergies (rationalize management, back-office, working capital, distribution networks, renegotiate contracts to reflect scale, etc.)
- Increase drop-ship share
- Leverage Orchard sourcing infrastructure for BGRP private label
- There's other Orchard opportunities they're being coy on...
So I'd say modest revenue growth over next couple years, combined with margin improvement
I'd look to credit partner agreements as main risk to that outlook
Wasn't me sad to say
I hope that's the case.
But the presser doesn't address the full quarter's throughput. "peak refinery throughput hitting in excess of 14,000 bpd" - the way this is worded means the average throughput over a given time period is almost certainly less than 14,000.
How much less? Couldn't guess.
But if they're touting it you'd at least think we'll see an improvement over last Q!
Yes one can only imagine so
Ok that understanding is consistent with what the numbers were telling me as well.
I recall that 'who is senior to whom' uncertainty from a couple years ago. I thought there was a good case for them to be pari passu. The trustee had mentioned that he (at the time) believed the Granite claim was senior because they had registered it against the operating sub and the holdco, not just against the holdco like our trust preferreds.
Appears he has acted upon that.
Will be interesting to see this play out. Now we need a good investment banker who can structure a recap (and preserve the NOLs), plus line up some investors.
Anybody spoken to the trustee recently to suggest a path forward here?
There's a pile of similar recap success stories we can point to: WMIH (recap structured, no acquisition made), CPMK (now BGRP), PMIR (still in progress), etc.
Forgive me for the uninformed question but I've lost track of this one.
A while ago we had bandied about recoveries in the $2M - $10M range as the insurance book ran off (based on trustee estimates). And that the $17M Granite claim, if senior to the trust preferreds, would take that entire recovery leaving nothing for AICPQ holders.
Well now Continental owns the Granite claim which has been settled for $11M. Still more than what the trustee was estimating as the runoff.
Good to have resolution, but isn't this bad news? Unless I'm missing something. Quick read of the b/s shows not much in terms of assets (with an allowance on the surplus note) or liabilities (litigation claims were mostly Granite, and the $116M unsecured debt is primarily us, the trust preferreds).
Could they even spin the toll roads? Given that it they are held by SGI (at least that's my read of the org chart) wouldn't a spin be akin to a dividend to the holdco? And need to be approved no differently than any other dividend to the holdco? (That is, approved by regulators and therefore, not happening anytime soon)
Oh, and forgot - most importantly
Confirmed $75M CRE at parent company. (The $53M number from the last conf call had weirdly netted the warrant liability against the CRE NAV)
Confirmed almost all the b/s cash is "excess"
Some notes from the investor meeting in no particular order:
Uplisting
Uplisting / going public is clearly going to happen at some point in the future. Management wants to clean some things up as prerequisites:
-Add funding sources for Fingerhut (besides SCUSA)
-Improve credit performance (good trends already in place, should stabilize in 2016)
-Integrate Orchard
-Have an anniversary of Orchard acquisition plus a couple quarters to show a full year of clean financials
Bottom line: these activities push an uplisting to early 2017 (at the earliest)
Buyback
Management was very clear that they believed the stock price was very cheap. To the point that they (sort of) endorsed someone's back-of-the-envelope EV/EBITDA and said the multiple was much too low.
As a guiding principle, they prefer to reinvest in the business. The chairman read a statement, to paraphrase: "But the dislocation in the stock is such that when the board convenes in January, we will consider a buyback."
Orchard sales
Orchard sales down ~5% YoY.
Lots of initiatives to improve profitability at Orchard. No strong view on sales trajectory – it may attenuate a little before reaching 'steady state' according to CEO. But this was in their buy case. "I don't know exactly how sales will trend. What I do know is that profitability is going to get a lot better."
4Q
Management said 4Q coming in a little soft. By "soft" they meant, not at double-digit growth. "Mid to low single-digit growth" over Q4 2014. Part of this was due to advertising campaigns having already been felt, part is tighter underwriting of credit risks, part is softness that management feels retailers are feeling in general.
Credit agreements
Management actively pursuing additional funding sources. Could look like the SCUSA agreement (selling receivables) or another model (e.g., securitization with a partner). Goal is purely to diversify - we won't necessarily see better economics from new agreements. Management views economics of the current agreement as pretty good.
Risk-adjusted margin for their SCUSA is at 330bp, which is below the buffer of 500 bp that the SCUSA agreement calls for. This means BGRP has to sell receivables at a 200bp discount. This will hit earnings – essentially 200bp x Fingerhut sales – but management said the discount won't be in force for the full year. So somewhere less than 2%.
Reason for the performance: regulation putting a crimp on late fees (impact already felt) plus charge-offs.
Synergies
We got some better color on synergies.
$3M cost synergies already taken out, they'll be reflected in results for FY2016. Management didn't pin down a number for other G&A synergies, but someone tossed out a ballpark of $10M and management endorsed it as approximately correct.
In terms of production costs – I asked about impact of bringing Orchard PL products over to the Fingerhut platform, and using the Orchard sourcing network to get current Fingerhut private label items for less. Management put the impact at 1,000 bp for the relevant items – which translates to a "50 – 100 plus bp" impact on sales overall. They'll be ready to make the full transition later in 2016, so full impact won't be felt for a while.
First glance looks like decent performance.
$30M AEBITDA and $22M FCF, but of course that includes what looks like $6.4M of CRE income.
When looking at the strong NI number, it is important to keep in mind that it includes $14M negative expense from 'gain on company's derivatives' - essentially marking their warrant liability down as the stock price got hit.
Some surprises, to me at least. Strong topline at Bluestem and Orchard. I was projecting $425-$450M, came in at $475.
Also, looks like there was more net CRE on the books than I thought. The presser states there is $74.9M, vs. what I thought was $53M at the last conference call (but it was a bit muffled). I'll try to clarify.
Additionally, I believe I was being conservative on working capital and that most of the $164M cash is at the holdco.
Margins a bit weaker than I projected. Looks like main contributor is retail interest from $8.7M to $13.9M, plus integration costs. Retail interest may be due to full Q of Orchard – I will verify. Integration costs I'm less worried about b/c if management is competent those ought to be translating into run-rate cost reductions to e.g. G&A.
All in all looks like things on track. Financials still a bit muddy but we should start to see the FCF generation shine through, especially in Q4.
Bluestem posts 3Q earnings
http://www.bluestem.com/wp-content/uploads/2015/12/Bluestem-Group-Q3-2015-Earnings-Press-Release.pdf
Bluestem Group Inc. Announces Unaudited
Consolidated Third Quarter 2015 Earnings Results
Eden Prairie, MN – December 15, 2015 – Bluestem Group Inc. (OTCMKTS: BGRP) today reported
unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc.
and its subsidiaries (“Bluestem”), for the 13-week period ended October 30, 2015 (we refer to the 13-
week periods ended October 30, 2015 and October 31, 2014 in this release as respectively the “third
quarter” of fiscal 2015 and fiscal 2014). Bluestem is a multi-brand, online retailer of a broad selection of
name-brand and private label general merchandise serving low- to middle-income consumers
nationwide.
“Bluestem Group delivered another strong quarter. Net retail sales, including sales from the Orchard
portfolio which was acquired on July 10th of 2015, were $475.0 million, and adjusted EBITDA was $30.9
million. Although net principal losses for the quarter were 130 bps higher than last year, the year-overyear
increase continues to narrow. On the Orchard front, we are making good progress on the
integration; we’re already cross-selling merchandise, we’ve consolidated and renegotiated several
meaningful contracts, and we’ve centralized the appropriate back-office and operations functions in
order to streamline both companies and drive the benefits anticipated in our acquisition model,” said
Steve Nave, Bluestem Group’s Chief Executive Officer.
Third Quarter 2015 Bluestem Group Consolidated Highlights – Includes Bluestem Brands beginning
November 7, 2014, and Orchard Brands beginning July 10, 2015
? Adjusted EBITDA for the third quarter of fiscal 2015 was $30.9 million compared to $8.3 million in
the third quarter of fiscal 2014.
? Net income from continuing operations for the third quarter of fiscal 2015 was $11.2 million
compared to net income from continuing operations of $5.4 million for the third quarter of fiscal
2014. Diluted loss per share from continuing operations was $0.02 for the third quarter of fiscal
2015, compared to diluted earnings per share from continuing operations of $0.06 for the third
quarter of fiscal 2014. Included in the third quarter net income was a $14.1 million non-cash gain
from derivatives in our own equity.
? Net gain on loans held for sale, investments available-for-sale, and equity in income of joint
ventures and partnership was $2.3 million in third quarter of fiscal 2015, which included net
gains of $0.7 million on proceeds of $5.9 million from dispositions of $5.2 million in net assets.
As of the end of the third quarter, the company had $74.9 million in net commercial real estate
assets remaining.
? Cash and cash equivalents were $164.9 million as of October 30, 2015.
1
Third Quarter 2015 Bluestem Brands Stand-alone Highlights – Includes Orchard Brands beginning July
10, 2015
? Net sales for the third quarter of fiscal 2015 were $475.0 million, including $234.3 million of net
sales from the Orchard Portfolio, a 123% increase over net sales of $213.3 million for the third
quarter of fiscal 2014.
? Bluestem’s adjusted EBITDA was $27.0 million in the third quarter of fiscal 2015 compared to
adjusted EBITDA of $11.5 million for the third quarter of fiscal 2014.
? Bluestem Legacy Portfolio net sales for the third quarter of fiscal 2015 were $240.7 million, a 13%
increase compared to $213.3 million in the third quarter of fiscal 2014.
? Orchard Portfolio net sales for the third quarter of fiscal 2015 were $234.3 million, a 5% decrease
compared to Orchard’s net sales of $247.8 million for the 13 weeks ended October 25, 2014.
? Fingerhut and Gettington revolving new customer credit accounts were 169 thousand, an 11%
increase over 152 thousand in the third quarter of fiscal 2014.
? FreshStart new customer credit accounts were 55 thousand, an 8% increase over 51 thousand in the
third quarter of fiscal 2014.
? Fingerhut and Gettington active accounts increased to 1.69 million as of the end of the third quarter
of fiscal 2015, a 10% increase over the end of the third quarter of fiscal 2014.
? 30+ day delinquent balances on the revolving portfolio were 17.6% at the end of the third quarter of
fiscal 2015 compared to 17.8% for the same period in 2014.
? Net principal charge-off rate on the revolving portfolio was 18.8% for the third quarter of fiscal 2015
compared to 17.5% for the third quarter of 2014.
? Orchard Portfolio active customers were 8.0 million as of the end of the third quarter of fiscal 2015.
? Orchard’s active customers were 7.9 million as of September 27, 2014.
All financial information included in this release is unaudited. Information for Bluestem Group is
presented on a consolidated basis, including Bluestem Brands Inc., beginning November 7, 2014 and the
Orchard Portfolio beginning July 10, 2015. Consolidated information for Bluestem Group’s whollyowned
subsidiary, Bluestem Brands Inc., is also presented on a stand-alone basis. The acquisitions of
Bluestem Brands and Orchard were accounted for as business combinations.
Adjusted EBITDA is defined in the accompanying financial information of Bluestem Group and Bluestem
Brands. Please see “Bluestem Group Inc. and Bluestem Brands, Inc. Financial Information-Overview
and Basis of Presentation” below and accompanying disclosures for a more detailed explanation of the
foregoing matters, reconciliations to results reported under GAAP and other important information for
investors to consider.
All quiet on the board.
The stock continues to trade poorly. I'm adding, as my analysis shows you can buy the operating businesses at 3x earnings or better.
Shall we toss out some numbers?
Market cap today of $408M at a $3 share price
Let's break the business into operating and non-operating pieces.
Non-operating:
Legacy Capmark is down to $53M NAV per the last conference call.
Then there's cash. $163M as of last report. How much can we call excess? Let's call $63M working capital and $100M excess. (This is likely conservative. The SCUSA agreement requires $40M of liquidity, although not sure whether that includes asset-backed revolvers etc. This amount plus $20M looks like enough to run the business)
So for the non-operating business there's $153M of value.
Leaving $255M for the rest: Bluestem and Orchard brands. (We can do this since I believe management kept the debt taken on in these acquisitions recourse to each operating entity. At least they did for Bluestem, I need to double check the $270M term loan for the Orchard acquisition).
What does $255M buy you?
For starters, it's less than the cash (or non-debt) portion of the acquisition price for the two operating assets: $265M for Bluestem ($565M acquisition less $300M term debt taken on) and $104M for Orchard (of the $410M acquisition).
Meaning the market is implying an immediate writedown on these two acquisitions, notwithstanding 1) greater resources and financial flexibility for growth at both companies 2) almost a full year of Bluestem double-digit topline growth 3) synergies between the two companies we should start to see over the next year, and 3) the tax protection the parent company's NOLs bring to the table.
Okay forget history and price paid - what does it buy you today? Last quarter showed $13.8M loss. Let's adjust that for BS I don't care about:
-Subtract AOCI: $0.362M
-Add back amortization of intangibles: $14.76M
-Take out the mark on the warrants: $0.411M
-Take out CRE income and opex (since we already netted CRE out of the market cap: $2,284M
-Add back one-time acquisition expenses: $6.6M
That gets us to a normalized 'cash earnings' of $4.5M for the last quarter. (What I'm calling 'cash earnings' is closest to EBDA)
But wait - Orchard was only in the results for 21 days. If we adjust these earnings for a full quarter of Orchard I get to an estimate of $12M cash earnings for the quarter. Annualizing this is putting us into 19% earnings yield territory (4 x $12M earnings / $255M market value). Not bad.
Of course you can't annualize a retail business. It's hard to say what Q3 and Q4 will look like from an earnings point of view since there are a lot of moving parts from the acquisition. But, we can say what the seasonal pattern of sales looks like, and then use the last quarter as a baseline for expenses.
Bluestem sales seasonality (Q2 = 1)
Q1: .74
Q2: 1
Q3: .93
Q4: 1.98
So Q4 is typically a monster quarter. Plus management is back-loading advertising to Christmas. If Q4 2015 looks like it has in the past, we'd expect to see ~$900M sales in Q4 (assuming Orchard is seasonal similar to Bluestem).
Scaling expenses that scale (COGS, marketing, Bluestem credit expense) and holding constant those that don't scale (G&A, interest) - I estimate between $80M and $95M cash earnings for Q4 (again, with the same adjustments as before like amortization etc.)
Now we can lay out the year
Q1 about breakeven, maybe small loss
Q2 ~$12M
Q3 $5-10M
Q4 $80 - 95M
Which means we're looking at $85 - $115M in cash earnings for 2015.
For a price of $255M. That's a 30-45% earnings yield.
And keep in mind this is before the impact of any synergies from the Bluestem - Orchard tie-up. They've never quantified those but we can imagine there are considerable revenue synergies (e.g., selling Orchard private label on Bluestem's platform) and cost synergies (using Orchard sourcing network for Bluestem private label, returns to scale in G&A, etc.)
(Let's idiot-check this vs. management guidance. At the time of acquisition, they guided to $169M in EBITDA. In the last conference call they stated that they were 'approximately on track' for this number. Subtracting $55M in interest expense puts us at $114M in what I'm calling cash earnings. I'm not sure what management means by 'approximately' but EBITDA 20% lower than guidance still means $80M in cash earnings.)
Risks:
-Credit buying business model may come under regulatory scrutiny as predatory
-Class action lawsuit about Bluestem pricing practices
-Funding risk: only funding agreement for their layaway business is with SCUSA, which is exiting the business. Current agreement nevertheless remains in force through 2020 and they are looking to second-source.
-The usual integration risks etc.
-Poor acquisition. Management is almost certainly shopping for another business and will use balance sheet cash (which is unequivocally not going to be distributed to shareholders) + more debt. I certainly liked the Orchard acquisition a lot less than the Bluestem acquisition. Hopefully #3 does not continue the march down in quality.
Rail leasing, barges, energy equipment.... that description alone must scare 95% of investors from even reading more. A rough place to be right now
Wild situation to be sure. Best to all involved.
Interesting situation. Before investing significant time understanding it - it looks like there is no way in or out of these shares. Is that correct?
Yes although I should say I have nothing more concrete on the "hope to have things wrapped up by end of the year" expectation besides on offhand remark from the trustee.
EI, this is an exceedingly good idea. Reviewed PACER and spoke to the trustee and it quite clear cut that a distribution in the ballpark of $1.60 - $1.80 should be happening soon. Trustee: "I want to have this wrapped up by the end of the year."
Now, if only there were some liquidity. Crazy that some shares traded last week at $0.60! My guess is that is not happening again, unfortunately.
Wonder what the seller was thinking there...
I liked this part
I'm sorry - you're right, we already knew about this one. I'm getting these lawsuits mixed up. Please disregard previous comments.
"We will receive 40% of the gross sum recovered by settlement or otherwise.... Notwithstanding the foregoing, our contingent fee will not exceed $7,500,000."
So, the settlement is at least $18.75M. But could be more.
That's ~60 per bond net of Susman's fee. I just checked the price, and the ask has gone up 55 in the last couple days (170-225). More efficient price discovery than I would have expected.
Thanks for kicking off, Vince.
I ran some numbers last week:
Debt
Secured debt: $70M (new asset-backed loan)
Sr. debt: $300M (new debt)
Sub debt:$18.3M currently held at NABCO (not the parent)
Other liabilities: ~$17M
Total debt: $405.5M
Cash: not much after acquisition
Equity
Preferreds: $30M
Current common shares: 12.5M
New shares: 12.25M
(I used $10 a share as a placeholder as well. Doesn't really matter for the rights offering if you participate - but it does for the secondary offering)
Total equity mkt cap @ $10/shr: $277.5M
(basically agrees with your numbers)
Earnings
EBITDA: $80M - $105M (TTM ~$80M, TTM + growth indicated by last YoY quarter - $105M)
Interest: $23.2M (assumed blended 6% on debt - this is probably too high. NABCO pays ~5%, but I didn't check the details on its guarantees.)
Taxes: assumed ~0 (10Q indicates 72K, probably state/local)
Maint. CAPEX: $30-$35M per management
FCF: $24M (low EBITDA, high CAPEX) to $54M (high EBITDA, low CAPEX)
Let's go with $36M as a good midpoint using $90M EBITDA and $32.5M CAPEX.
That's an EV/EBITDA of ~7 and a P/FCF of ~7. The most optimistic scenario has P/FCF at ~5, pessimistic P/FCF at ~11.
Of course, this gives no value to the NOLs - at least those that will not be consumed by this acquisition.
Thanks EI, it seems I may have been mistaken as to the provenance of that $1.5M payment.
Still, puzzling why they would need to redact the payor in the cash receipts section if the settlement and amount is spelled out in the note you reference. Also puzzling why we have not seen a Goldman payment given the deadline of 10 business days from the court order approving the settlement. Presumably this means that Goldman has not yet been provided wire instructions from the trustee.