The Dolan Company (fka DOLNQ)

[BG2008]

I am surprised that the preferred (DONPQ) is not talked about here. Yes, it is less liquid. But, it is more senior to the common. If common is in the money, then the preferred maybe worth $26 including dividend accrual. It is trading at $2.00 per share. It appears to be the much better instrument to own in this situation. If the equity is arguing that the entire company is worth $212mm, the hurdle is $177mm, then the preferred is made whole with ~$18mm claim which represents 12X upside. With the common trading at $0.124/share representing 3.84mm market cap, there is only 3.42x upside. It confuse me why the prefers trades at such a discount relative to the common shares given that it is the more senior security.

My thought about the debtor/lender valuation by Peter J. Solomon is "really?". For example, they discount the $17.3mm notes receivable at 22%, the NOL at 24%, and they are valuing that Bayside's debt recovery is about 56-67 cents on the dollar. See link Pg. 36, 37, and 39. From the court hearing, Bayside bought the debts at 80-85 cents on the dollar. As a sanity check, Bayside is too smart to enter into a trade to be down 30-40% from the beginning. The judge even took the time to ask Bayside if there was a deal to pay off the debt at par, would Bayside take it. It is rather clear from the calls that Bayside wanted the operating business from the get go.

http://www.kccllc.net/dolan/document/1410614140603000000000010