petec

Cardboard, are you confident Dundee can actually realise cash from the ICC transaction?

Yes. Existing assets are amazing in an inflation. But replacing assets is a nightmare.

Could you elaborate?

Turkey has precipitated a broader EM sell off though, so you may be able to find bargains elsewhere.

Agreed.

If I was them I would not want to lose the convert option. That would be a deal breaker in a negotiation for me. And I wouldn't accept a lowering of the conversion price (much). Notably they said on the call that in the future they ideally have no liabilities at all so it's possible that future access to the credit/pref markets is not something they care about. Plus, credit markets have short memories these days and I have no doubt Dundee, if it turns its position around, would be given access. So I tend to think renegotiation and conversion are roughly 50:50 probabilities, at least from my outside vantage point. Obviously conversion is great for the other prefs. Whether conversion is good for the common depends entirely on your estimate of BVPS. In my base case, NAV is low enough that conversion is accretive to common BVPS. I'm being pretty punitive with some of the more opaque values (generally allowing for half of BV and in some cases nothing, including for UHIC which could easily be a zero) so my NAV is $81m. Conversion adds $83m, doubling the NAV but "only" adding two-thirds to the share count. My base case has NAVPS at $1.38 and converted NAVPS at $1.66. Obviously conversion takes away some of the upside but it's still anything up to 5x on my bull NAVPS (with the major needle-movers being DPM rerating, Parq turning out OK, and UHIC producing oil). So, I kinda like the idea of converting. It leaves me with great upside and lower risk. But conversion would create a massive overhang in the shares. I can see a huge opportunity developing in the common over the next few months, and if that happens I'll buy more (depending on newsflow). I see the common is down 11% today. Has anyone seen any news or are we just seeing (more) capitulation?

They sold off some of the assets of the Blue Goose fish business, and said their is interest in the remaining parts. I don't think they indicated any interest in Blue Goose more generally. They just said that selling down the beef herd will generate some cash and limit the amount of capital that corporate has to send into that sub. Thanks. I'd add that the 2006 land valuation (100m) less BG's liabilities (60) comes to more or less the BV (40, BV is 30) so I won't be surprised if there is interest in the land at a price that allows them to harden and liquify book value.

Am I right in thinking that these have been written off as assets but could come back if profits/gains are made? And do they disclose how much of these are at the holdco vs, say, Blue Goose?

My key takeaways from the call: - DPM is going well and could be worth significantly more next year. It's big enough to move the needle significantly. - They're clearly prepared to play hardball with the convertible prefs, which I regard as good news because it dramatically reduces liquidity risk. - No real details on the portfolio review but the underlying commentary is positive. There's a steer to $100-200m of sales in 2H, not including DPM or UHIC. By definition that means liquifying a material of the undisclosed/private/hard-to-value holdings and if it happens it will harden up BV materially and remove liquidity risk. Interestingly they didn't explicitly exclude selling Parq, although they weren't asked. I think they also said that they have had interest in Blue Goose. - Delonex drills first Chad well in 2H - potentially also hardens up BV (one way or the other!). - They are clearly deep in the process of not only refinancing Parq (potentially with PIK flexibility) but also bringing in another capital provider with relevant skills to help ramp the business faster. That would presumably reduce Dundee's % stake but it might increase and harden up the value of the position. That said I don't really understand what skills they need given they have Marriott's support & systems already. - I found it interesting that they reiterated long term ebitda guidance for Parq despite having written it down due to changes in long term forecasts. I take this to mean there is a chance the writedown is conservative. More generally, I am tentatively impressed by Jonathan Goodman. He's saying most of what I want to hear - but ultimately it's actions that count. On the negative side: - There was a questioner on the call who seemed convinced that when the convertible prefs were extended, the conversion right was removed or affected. Need to check this. - The tax thing is new to me and wasn't questioned but could be material. I totally agree with most of the comments on here e.g. about Parq becoming a material risk and the prefs being better than the common here. Sadly I can only get exposure via the common (EU bureaucrats consider me too stupid to buy the prefs, as explained above). I will hold, but have cancelled my planned add. Entirely theoretical exercise but it's quite interesting to work through the impact on the common if they convert the Series 5 prefs and do a tender offer for the others at say $13, paid for by a fire sale of assets below BV. It's surprisingly hard to get serious downside for the common in that scenario, but obviously that assumes the pref holders would sell.

There are circumstances, I think, in which that would be good for the common as well. It increases my base case NAVPS outlined above. It decreases my bull case/everything goes right NAVPS. But everything isn't going right!

My numbers are a mix of the MDA breakout for investments (eg Parq) and the segment breakdown at the back of the financial statements for the book values of consolidated holdings (eg Dundee Securities). Your 164 consists of direct equity holdings that aren’t consolidated and includes DPM+ECS+unspecified other. ECS has fallen since. The 164 does not include ICC (held through Union) or DST (consolidated). P32 of the MD&A is useful for this. It does take a bit of picking away to understand where everything is.

FWIW my updated base case SOTP is $1.32/common share. I have: - Listed equities at market (DPM, ECS, DST at current price and "other listed" at the 2q18 BV of 32). - TauRx at 0 - Parq at 25 which is $60m of ebitda on 10x less debt; this ought to be conservative but at this point, who knows? - All of other private investments, debt, Android, and Sarea at 50% of their carrying values because I don't have the visibility to know otherwise. - Union at 75% of the value of ICC (since they can't sell it) and nothing for non-ICC assets - Blue Goose and Agrimarine at 0 - Dundee Securities and D360 at book value - United Hydrocarbons at 0 - Holdco cash at 20 not 30 because they have costs Adds up to 325 in assets, less - Recourse debt 10 - All prefs at par (I've considered using market but they don't have the cash to buy back and if things go right the prefs will rerate) - 27 in other holdco liabilities That feels to me like it's sufficiently conservative. There's a decent chance almost all of the assets could be worth more than I have them down for. I just want to see some real activity to convert nonperformers to cash, buy back some prefs, and focus down on the assets that are really likely to move the needle.

Results look pretty abysmal. Parq equity written down to nil and the preferred shares written down somewhat too, on changes to long term forecasts. They continue to contribute capital higher up the stack but there’s so much debt it doesn’t give them much protection. I struggle to believe this trophy asset could be a zero but the accounting is moving that way. On the positive side there’s progress at DPM & DST, and first wells will be drilled in Chad in 3q. No obvious signs of major decisions such as operations being moved into discontinued. There are still significant potential writedowns to come (e.g. TauRx) and one of the two possible operating cash flow generators (Parq) doesn’t look like it’s working. The other is Chad and that’s speculative. Other holdings are illiquid or are the last things they want to sell (DPM would be a dumb sale IMHO as it’s making clear progress that isn’t in the price yet). I’d be cutting those pref dividends if I was them!

I read the comment about the ability to repay one pref with common was a comment about liquidity, not solvency. It's a risk reducer and therefore a good thing. I may be wrong but that's what I thought he meant.

Don't those shares get votes if they do that? I think they have some rights which the Goodmans might want to avoid triggering.

This is a phenomenal article and relevant to this topic: https://www.theatlantic.com/health/archive/2017/02/when-evidence-says-no-but-doctors-say-yes/517368/

Good. They need to!

The upside in this thing if either Parq or Chad work out is immense.

I'm enjoying the fact that the common is down 5% just because they set a date for announcing results! I get the sense Mr. Market has inverted "no news is good news" into "all news is bad news"! And understandably so, but if they've made progress on converting more holdings to cash and have something intelligent to say about future strategy, this could be a positive q.

That's a very good idea. Thanks. Out of interest what platform do you use to trade Mexico?

Looks like about $6bn has moved from cash into ST bonds since year end. And p16 of the release shows no index shorts and a reduced notional amount of stock-specific shorts.

I don't think they ever completely stopped shorting individual names. I'd be very surprised if the index shorts are back in a big way.

I would imagine there’s a method for valuing the shares built into the agreement, and if the shares get to the strike price according to that method, the warrants become exercisable.

Not a bad day to own a third of RFP!

Interesting. I do feel like Fairfax have got themselves into a position where they get advantageous deal terms. Buying the equity here would have been a nightmare but a long term pref, combined with warrants, combined (as it turns out) with financing an MBO gives 3 ways to profit from the same cash flow stream, with nice upside/downside skew. Has anyone seen anything on the terms of the financing for the MBO? I'm guessing Fairfax will have structured it well and to their benefit.