Post of the Day
Posted by: semiguy99
In reply to: ericseb1 who wrote msg# 37770
Date:8/11/2006 8:47:58 AM
Post #of 38419
“We are an asset holding company, the bond was brought in the company, as an investment, to arrange a hypothecation to support a venture…”
This is the most significant statement I have heard from anyone regarding CSHD.
CSHD did not purchase this bond.
An investor provided this bond to CSHD in exchange for what is most likely a variety of considerations:
1. Income: they probably are getting back some of the annual earnings.
2. Stock: they clearly will own a significant amount of stock in CSHD going forward.
3. Future considerations: the opportunity to be an early investor in one or more opportunities provided by CSHD.
The result of this is that CSHD gets to add the bond to the balance sheet and gets to hypothecate (borrow) against it to invest in JV's. They probably will have (afer interest expense) at least $30M of investment $ annually just from this bond. Rufus has already hinted that there are other, larger assets being entered into CSHD in a similar manner; this could give CSHD well over $100M annually for investment and make this a very large equity fund.
Equity funds (most are private, CSHD is public) use leverage to generate enormous returns for their investors. CSHD is going to 'leverage the crap' out of their balance sheet assets (just as private equity funds do all the time) to provide incredible returns to investors.
There are thousands of outstanding private companies in the US that are looking for exit and expansion scenarios. Equity funds either do leveraged buyouts or make investments (using some equity and lots of borrowed money) to satisfy this need.
Let's just look at one CSHD JV: AISS. Why would Georgia Aerospace get involved with CSHD? Because they have financing and liquidity, that's why. The liquidity is more important, most likely, than the financing-public companies trade at 10-20X earnings while private companies are only valued at 3-5X earnings.
Most retail investors never have an opportunity to invest in private equity funds; we don't have enough capital or the contacts to make this happen. But large investors (such as pension funds) put tons of money into equity funds and reap significant rewards annually. CSHD enables at least some of us to participate.
The problem for many of you is that you are traders, not investors. If you were fortunate enough to get in really early, do yourselves a favor and sell most of your shares so you can get back to trading. But also hold on to a little of this because it might make you really well off in a few years.
AI
