bizaro86

If you do, please come back and post your thoughts/findings. This is a very interesting topic and a good mental exercise, imo.

I think it's also worth noting that some of the causation might be backwards. (or, say, inverted ;) ) For example, the price of oil is down because of increasing supply. Countries that export oil (Canada, mexico, brazil, indonesia, etc) have their exports and terms of trade slashed, so their currencies depreciate against the USD. There is definitely some part of the price drop that is currency related, which cushions the blow slightly for producers outside the US. My employers costs (like my salary) are mostly in CAD, while its revenues are in USD. So although the lower price of oil has hurt badly, the price of oil in CAD hasn't dropped quite as precipitously.

One good option is DLR/DLR.U, which is an exchange traded fund traded on the TSX. It's assets are only US dollars, so it tracks the currency. It trades in both $C (DLR) and $USD (DLR.U).

From the comments, it sounds like this was a pretty interesting life story. As I'm always very interested in the stories of people who achieved success in an unconventional way (those stories typically have more to teach us, imo) I'd appreciate it if you'd consider putting it back up. I wasn't around from 8PM-4AM (the times originally posted and edited by my computer's clock), so missed it.

Yes. But I also wouldn't want to compete with a bunch of really smart people with borderline-unlimited capital...

My wife and I have RRSPs at Scotia Itrade and RBC Direct investing. The only differences I've noticed: convertible debenture commissions are $9.99 at RBC, and more at Scotia ($24.99 iirc). RBC will allow you to hold US dollars in your RRSP, scotia doesn't. (Convert using Norberts gambit, don't pay them to do it). Scotia gives me free level 2 quotes for Canadian stocks.

Thanks everyone! I do use IB, and the margin this position is using up is annoying, but not critical. I've had the position since well before they declared bankruptcy, as the overvaluation was pretty severe, even pre oil price drop. What I don't want to happen is end up paying for borrow on a worthless stock I can't cover for 2 years as a court case drags on. It seems likely that it should trade OTC somewhere after delisting from NASDAQ (March 3rd)? Similar to TWA's situation, I kind of want to capture all the profits from what was a pretty good call if I can, but intellectually I want to make the right decision. It's funny you mention AAMRQ, I looked at that when it first went under, and bought the exchange traded bonds which eventually converted (they had a margin of safety and the stock didn't, imo). While the stock was a 30 bagger and the bonds were only a 8-10 bagger, the bonds didn't trade, which probably saved me from taking profits too soon.

I have a short position in Ivanhoe Energy, which recently entered creditor protection. The stock trades on both the TSX (IE) and NASDAQ (IVAN). The TSX has already halted, but Nasdaq hasn't. I think quite strongly that the stock is worthless, as there is a material amount of both secured and unsecured debt, and the assets are worth $0, even if oil prices improve. However, the stock is still holding on at ~$0.40. I'm happy to time arbitrage the situation and wait for the shares to be cancelled, but I'm not sure I understand the mechanics of how that works. If the stock is cancelled/doesn't trade, would I be able to/required to deliver the shares I borrowed?

Do they allow U.S. dollars to be held inside registered accounts like RBC? They do allow CAD and USD to be held inside registered accounts, but no other currencies. So you limited to investing on Canadian and US markets in those accounts. Also their standard $10 minimum fees per month applies for accounts below $100k. rb Interesting. Can the minimum $10/month fee for small accounts be covered by trading in other accounts? IE 3 total accounts (non-reg, RRSP, TFSA) spending a total of $30/month across the accounts? My TFSA is pretty inactive, and I'd prefer not to pay a minimum commission on it. Do you know whether market data subscriptions count against the minimum?

I bought a bunch of RE in 2009-2013, and sold more than half in 2014 as prices here were high. IMO buying RE makes sense when the return you will make assuming reasonable repairs/vacancy expenses and no appreciation exceeds a reasonable stock market return. Advantages are leverage and potential to buy under market value, which gives a margin of safety. Of course, leverage is risky, and because RE investments are sometimes larger than stock investments, people often get very concentrated. Ask yourself, how would this investment due in a bad recession in my area.

And no discussion of the forward strip which doesn't see oil getting back to $100. It is under $70 out to 2024. If you think it's going back to the moon it should be relatively easy to make a killing by speculating on futures. I have also yet to see anyone say the words "permanent loss of capital". I've experienced what I consider a permanent loss of capital in oil investments recently. I had a couple of distressed debt positions in companies I thought would muddle through/raise new capital, with the assumption that oil prices would be at strip or slightly below. When they got destroyed, those leveraged producers got killed, and will likely all declare bankruptcy with near 100% losses on their debt.

Anything that has lots and lots of leverage, of any kind. Asset management and real estate both leverage off of other people's money (different kinds, same idea). Software and retail are both network effect types of leverage. Oil and gas has many billionaires, but the leverage there is operating. Drilling an oil well/play can be a "lottery ticket" type operation, where success is multiples of investment and failure is a zero. Of course, many oil and gas billionaires are more financial operator types anyway, where they've bought cheap assets at various times, as opposed to drilling their way to wealth.

Do tanks really run on gasoline? I've always assumed they ran on diesel, like large industrial engines. It would certainly be more efficient...

Thanks Sculpin, that's a very interesting idea. How are you valuing Cline? They look pretty distressed if you just look at the financials. Do you have an opinion on the quality of the mine and technical or price assumptions necessary for it to be worth enough to cover the debt?

In that situation they would have $135MM USD of first lien debt and $260MM CAD of second lien debt remaining. Which is still an awful lot for a company that did ~4MM of EBITDA in their most recent quarter. They still would end up in CCAA unless operations improve. They do have some low hanging fruit at their first project, but they need $18MM in capex to drill the next phase of wells. The company has huge operating leverage, so if they are able to make even small improvements they'll be able to make the payments on the 1st and 2nd lien debt, but I don't see the debentures getting paid in full under any scenario. I don't mind the conversion before the december payment scenario, because I think the equity would still have some turnaround/option value, and the converts would own essentially 100% of the company in that situation. This definitely fits the speculative criteria at the top of the thread, which is why I haven't written it up for the forum.

This is sort of a general question spurred by your suggestion. Where do you find the documents describing the terms for such debentures as these? I took a look on SEDAR for company filings but I have no idea what the filing would be called (if its even there). Hopefully this isn't too dumb of a question. Not at all. The prospectus is on Sedar. It is filed as Final short form prospectus, and dated Dec 23, 2010. I generally find it easier to search Sedar by date rather than filing type. If you google "Southern Pacific sells debentures" or something similar, you can find out when they sold the securities, and the prospectus will be on Sedar around that time. Hope that helps.

My current favourite speculative potential multi-bagger is STP.DB (trading in Toronto). The company is an oil producer with a 2 producing assets. One that they bought at a bargain price a few years ago and have started starving of capital due to their extremely distressed balance sheet/cashflow position. The other is an oilsands project that has been continually having performance issues. The company is not likely to be able to repay the debt they took on to build the oilsands project without a material improvement in its productivity. I think the company is almost certain to require CCAA/restructuring, but I think the debentures are a potential multi-bagger anyway at their current price of $2.50 per $100 of par value. The company recently sold a non-core asset for $19.5 million, which gives them enough liquidity to meet their December debt payments and operate for a few more months after that (probably 3-6, depending on various factors). The debentures are owed $3 per $100 of par value this december, so a speculation could return all its capital in a short time if they make the payment. If they don't, they would convert the debentures to shares at Par, at a 5% discount to the recent share price. This would be my preferred option, as although that would immediately tank the stock even further, I'd probably be able to sell the shares for more than the current debenture prices indicate, and likely for a 3-5 bagger. The hugely speculative upside option is that they make the payments in december, and their production turns around from ICD installations (inflow control devices have been installed at the oilsands project, and scuttlebutt is they're starting to work). If they do, the debt could be worth 30-40 cents on the dollar easily.

I'm sure the market will provide lots of those in every industry on a regular basis. (GTAT was another recent one in a pretty different sector). I'm pretty levered to the sector via my job/stock options/real estate interests in an oil city, so I try not to overdo it on the O&G investments, but some of this stuff is very cheap. I have a full position in LTS now, and can't help but thinking the board should be frustrated enough to sell the entire SK operations to Crescent Point any day now... I also have a decent size position in Touchstone, which I inherited from the old Petrobank which was a net-net when I bought it. I have a hard time figuring out the Trinidad assets there, but I really like their SK heavy assets now that they've finally given up on THAI. Slap a modular (Propak or Oak Point) SAGD facility down (or just modify the existing THAI one) and those lands would make a material amount of free cash flow. If CNQ gets too much cheaper I'll load up on it. They're the lowest cost operator in the basin, and if there are big distressed assets on the market they're the guaranteed buyer.

Depends on the accounting standard used. For instance, Canadian REITs (and hotel companies) usually mark their real estate to fair value every year, as we switched over to IFRS from GAAP a few years ago.

In the medium term I think depreciation can be ignored for cash flow, but it eventually catches up with an asset. If you were taking a very long view (which may not be necessary) you should include some sort of estimate, as large building wide renovations probably end up getting capitalized, even though they're necessary to keep the asset productive. As an example, KingSett and Innvest just bought the Fairmont Royal York in Toronto. The property is in the midst of a $100 MM upgrade, and the new owners are planning on doing an additional $50MM upgrade. The property has ~1300 rooms, so they are doing about $115k per room in renos, which is signicant. Granted the hotel is extremely old. On the other hand, the implied valuation of the hotel from the deal is only $186 million AFTER the previous owner put in a $100MM reno. And the hotel sits on extremely valuable land right across the street from Union Station. So the renovation is an extremely large portion of the value of the hotel building, suggesting that depreciating the previous building to very close to zero would have been economically accurate. http://www.thestar.com/business/2014/10/28/royal_york_sells_for_186_million.html

Thanks!

It says the conference call auction doesn't start until Oct 28th.

I've never been a reserves evaluator, but I have argued with one that my property deserved more reserves... :D Seriously though, Sproule is one of the the three consulting firms generally used in Canada. The other two are McDaniel and GLJ. They care about their reputation, so they're not likely to outright lie. However, the assumptions that go into their evaluations are highly maleable. I like looking at proved numbers, because in my experience they're (evaluators in general not Sproule specifically) much less willing to move on proved numbers than they are on probable.

I don't have a position in either, but CNQ has much better management, imo. The company consistently makes the best acquisitions in the business, and has a much better track record than Suncor. (Over the last 15 years they're about a 10 bagger vs about a 5 bagger for Suncor). I've dealt with both companies in various ways, and know people employed at both. CNQ has the attitude of a low cost operator, and makes their decisions in more of a "capital allocation" way. Having an owner-operator (Murray Edwards) at the helm helps with that, I think.

CNQ is the other big one