5xEBITDA

10 business days following the actual notice of redemption at the special meeting of shareholders.

He plainly states in more than several of his videos that the stock had a very high short interest and a short squeeze could happen. I think he's still under investigation, which doesn't really bode well for him since its not like he only ever talked about the fundamentals and the short squeeze was a surprise.

I agree with this, but am curious how much skin the game a sponsor would typically have? Between d&o insurance, underwriting, listing fees would the sponsors typically be putting up say 5% of the amount raised? Be curious for any rule of thumb... Yes, typically it is 4-8% of the amount raised. So, unless the sponsor funds their investment out of an existing PE or HF vehicle, I think its fair to say they have a good amount of skin in the game. If they are funding with LP $s then the promote is really for the benefit of the LPs and the GP maintains their existing fee terms.

It's less of a "finders" fee and more of a "success" fee. People like to talk about how if the SPAC doesn't find a target, or the investor doesn't like the target, they can redeem their money and get everything back, even in a liquidation. In a liquidation, the sponsor loses all their money. So the promote is really compensation for assuming all of the downside risk in the event they liquidate. It's not perfect, but the risk/reward profiles are very different for the sponsor vs. investor and I do think its appropriate for the sponsor to have higher economics because of this. However, 20% may be high.

I think the option to pay in stock is good from a credit perspective as it gives OXY a way to issue equity in bad times and probably allows OXY to argue that the interest on the prefs need not be included in any kind of credit metric, just a speculation, no basis in fact for this, i feel like 5XEBITDA would know this. Whether or not pref-related interest is included in a credit metric covenant would be laid out in the Company's credit agreement / indenture, but most likely the CA. If I had to guess, it won't be included because 1) interest can be toggled between cash and stock, and 2) pref is only debt-like and not a true loan or bond, and most financial covenants only seek to govern metrics related to pure debt securities. I haven't looked at OXY, but would be surprised if the pref can freely opt between paying cash or stock with no other penalties. I've heard of prefs / converts with structures like this, but in practice they're rare. Even rarer are those that promise cash but can jam you with stock upon maturity, but have seen.

Why don't you buy puts on LQD or HYG?

This forum can be hostile for absolutely no reason sometimes.. wtf is wrong with you people. I thought the sarcasm was obvious :( isn't sarcastic and obnoxious worse than just obnoxious? Perhaps, but not worse than a buzzkill!

This forum can be hostile for absolutely no reason sometimes.. wtf is wrong with you people. I thought the sarcasm was obvious :(

A trash company rollup being connected to organized crime doesn't even crack the top 10 of the most interesting things I hear in a given day...

Value investing does not have a problem. Value factor, which most "value investors" unknowingly (or knowingly?) traffic in, has performed horribly for good reasons.

The twitter posts referenced compare a capital and most populous city in all of Scandinavia (Stockholm) to the average for all of NY State, much of which is very rural and sparsely populated. New Jersey, Rhode Island, Massachusetts, Connecticut, Maryland and Delaware all rank as more densely populated that NY State. I am confused. Over 70% of NYS cases are in NYC, so this seems like a fair comparison to make?

Hi passing by distressed investor here without a dog in the fight. The answer is yes to all of the above three cases due to company specific issues that the initial March/April shutdown caused.

Hey sorry, I don't understand this part. Q1 cash was $209 million, but only $62 million was held within the US. Of the non-US cash, $88 million of cash was in China. My prior discussions with the Company indicate that while it may be possible to get non-US, non-China-based cash back to the US, they cannot get the China cash out easily due to the need to dividend it out of a specific subsidiary which requires both US and Chinese regulatory approval. Assuming all $209 million cash is available, I still don't understand the net cash part. They have $111 million convertible debt outstanding, a $373 million unfunded pension liability, and another $200 million of convertible preferred stock all ahead of the equity. The equity was (and still is?) significantly out of the money and based on some work I did back in April I felt they would require bank debt amendments in order to avoid triggering covenants over the next several quarters. Edit: From what I understand, the government financing is only an LOI and still has some hurdles to clear. Further, their facility has not been built / renovated / approved / etc. Think this is way overdone. On 7/27, 9,312 Robinhood accounts owned KODK stock. At the close today, 113,464 Robinhood accounts owned the stock.

Being long stressed, performing credit has been a great 2Q trade, although I'm not so certain it will be going forward as things have settled down and those credits still stressed are those with the most amount of hair on them / likely to actually restructure. Hard for retail investors to participate in these trades given minimum purchase size requirements, worse spreads vs. institutions, and you should be aware that as a retail investor you are knowingly putting yourself at a disadvantage in restructurings vs. institutions. Not a disadvantage in the sense you're not as smart, but a lot of restructuring plans will purposefully exclude / offer a worse deal to non-QIBs because institutions don't like the headache of dealing with retail holders in these situations so they prefer to clean them out of the structure.

I would hesitate to call distressed debt investors bad actors (am I one?!?), although there certainly are those who are worse than others. The grievances mentioned in this thread so far...I mean, they are just another part of the analysis you do and a risk that is understood. Someone else mentioned that if it is on your side it is genius, and if on the other side it is bad acting. That's probably a fair way to look at it. I am under no illusion that because me and Mark Brodsky own the same bond we are on the same side. So, I just don't do that. Or if I do, call a lawyer first :) Maybe because I'm exposed to it so often I'm a little desensitized for it. For example, I thought the Brookfield thing with TOO was pretty smart and don't blame them.

Be careful shorting ~$1 stocks. Frankly, the points you raise are well known to the market. This was a $3 stock before the pandemic, and you don't even need to do that much work to see how in trouble they are. The crux of the work that needs to be done here is really how long can they survive. We need to assess their liquidity and capital requirements. Ignoring cost of goods, they have about $1 billion of annual operating expenses (marketing, SG&A, net of D&A, etc...). Annual capex and interest requirements are another ~$75 million. So $1.1 billion annual capital requirements, or, $94 million per month. The Company ended 2019 with $751 million cash and nothing drawn on their $400 million credit facility (except for a small amount of letters of credit). Do they have $1.2 billion current liquidity? I don't think so. First, $205 million cash is locked overseas. Corporations historically have trouble quickly moving cash back to the US if it is in foreign countries. Next, their credit agreement has a $250 million minimum unrestricted cash covenant (inclusive of $150 million that looks like it has to be kept in a lock box or something). Point is, true liquidity is probably around $300 million because I don't think they are going to have total access to their credit facility. The credit facility is secured by all assets, which for an asset lite Company is a bit of an oxymoron. I have looked at dozens of businesses over the last couple of months in similar situations, and they all drew their revolvers in March or early-April. The fact Groupon hasn't drawn on their facility makes me think they may not be able to, or are unwilling (could have springing covenants that they may not be in compliance with). So, $94 million monthly capital requirements and $300 to $550 million liquidity (the greater end here ignores the minimum liquidity covenant). This means they have 3 to 6 months before they literally run out of money. There are some caveats to this analysis. First, it assumes they don't cut costs and expenses which they certainly will. So add another 3 months. Next, we don't know what the cash burn situation will be. I think it is going to be negative, primarily because they run a $424 million net working capital deficit which is definitely going to unwind on them in a mean way. So dock 2 months from liquidity (guessing with this stuff). Net net, I think they probably have between 3 - 9 months liquidity before running out of money. This is why the stock is trading at $1 - it took me ten minutes to figure this out and everyone else has had since March. So, going into earnings being short the stock is probably a bad idea because the only thing people are going to care about is how bad the cash burn situation is going to be. If it is worse than expected, stock becomes a rock. If it is about as expected or better, this stock will rocket. The only thing people care about this earnings season is whether or not the Company will "make it". Given the large amount of negative sentiment here, I am inclined to bet that the stock will probably rise on earnings that are "not as bad as feared". This has been a theme I've been observing in my levered small-cap universe. I could totally be wrong though!

I think they are benefiting from 1) increased liquidity positions (CCL issued new 1L bonds and RCL has raised some liquidity) and 2) directionally positive virus news in the US / world. I'm in the camp that these companies have much more downside because, as others have said, I really don't think you get back to "normal" or even "close to normal" cruise bookings any time soon. Another risk that I think has gone unnoticed is the risk of booking cancellations in the form of cash rather than credit. I think it was CCL who said most of the booking refunds they've had to give to-date have been in the form of credit...I think this flips over really hard once 1) people realize cruising will be closed for much longer or 2) there is a 2nd wave of infections (likely in the Fall).

3x ebitda? Am I reading that right? More like 3x EBITDA heading to 4-5x, etc. In which case more than tripling your capital commitment is an odd thing to do even if it does move you higher up the structure. Edit: nvm

3x ebitda? Am I reading that right? More like 3x EBITDA heading to 4-5x, etc.

Pricing model is changing, or at the very least the market is anticipating that. AAA titles may very well move to a point where they are structurally unprofitable and the publishers will need to start reinventing their business models.

Read the cash flow statement. In 2000, the net change in cash was approximately $1.0 billion. If you look closer to the line items, they recorded a gain of $1.8 billion from "proceeds from sales" and similar amounts the two years prior. Thats a weird line item. It's different than "proceeds from asset sales", its just...sales. What are these sales? Dig into that. Another really weird thing about their financials is the following on their income statement. Revenues: 1998: $31 billion 1999: $40 billion 2000: $101 billion Operating Income: 1998: $1.4 billion 1999: $800 million 2000: $1.9 billion That's very weird...revenue is exponentially growing, but operating income is not, and in fact margins are going down. How can you have so much more revenue coming in without cash following? I would read the revenue recognition policies in their annual report.

Fair points. To me long term bonds (if possible) are like financial catastrophe insurance vs bank debt or other short term debt. The company may pay more but it less likely to be forced to file if the credit window is shut at the wrong time. Interesting perspective, but can I ask why you view bonds as better insurance vs. bank debt? Structurally, bonds are subordinated to bank debt and bonds don't always* have security in the form of assets which would likely mean they are at risk of lower recoveries than bank debt in the event of default. According to JP Morgan's most recent default monitor issue, the 25 year average recovery rates for all bonds was 41.4 cents vs. 66.4 cents for 1st lien bank debt. Another feature of bank debt which I view as more attractive than bonds is the lesser chance of being "primed". To be primed means that the Company issues more debt that is structurally senior than you. Lets say you have a $1,000mn EV company with $400mn bank debt, $400mn bonds, and $200mn equity that trades at 10x $100mn EBITDA. Through the bank debt my leverage is 4x and bonds are 8x. You invest in the bonds because you view the worst case scenario as the Company being worth 8x EBITDA, so your bonds are covered at 100%. The Company decides to utilize a $200mn incremental bank debt facility (were assuming 0 benefit to EBITDA here just to keep it simple). Now, there is $600mn bank debt ahead of your $400mn bonds. At 8x EBITDA, your bonds are now only covered at 50% while the bank debt still receives a 100% recovery. The incremental bank debt is senior to your bonds, but equal (known as "pari passu") to the existing bank debt so their claim on value is the same. The point here is that bank debt typically offers you more of a cushion for the Company to pull different levels without potentially impairing your value. The trade off is usually a lower total return vs. the bonds but bank debt may be better risk adjusted return given the downside protection offered by covenants and structural seniority in the capital structure.

Interesting stuff. Seems to me that all else equal a company is in a position of weakness if it needs to maintain certain financial ratios. If the company does not maintain the ratios then it is at the mercy of banks/vulture funds and the "value" at the time of bankruptcy. If the equity claim has a call option for the upside on the company, bankruptcy could transfer that call option or value to the creditors - and unfairly so. The first 4-5 pages were interesting then 71-72 has examples of senior creditors undervaluing businesses in bankruptcy. https://www.hbs.edu/faculty/Publication%20Files/Valuation%20of%20Bankrupt%20Firms_ec9b67e7-4286-4581-a1d0-eb2c2a3a7ffe.pdf There was also a line on page 2 that I liked: "US bankruptcy law resolves valuation through negotiation." I would add sometimes "or judge" to that. Disagree. Its a common feature of credit agreements to incorporate "maintenance' covenants - leverage / interest coverage ratios as protection for banks. Does not mean a company is at a point of weakness. However, in frothy economies it becomes more common for bank debt to be "cov-lite" with little to no covenant protection baked in to the credit agreements, this is more often a bad thing. But like I said, if ratios get in the way of the company from doing something that they want to do they can get a waiver or amendment from the bank most of the time if they are in good standing. If the company does not comply with the ratios, then why shouldn't they be in bankruptcy or face penalties? The ratios are put in for a reason, to protect lenders. Why would you want to invest in the equity of a business that disregards the protection of their lenders? More often than not, whatever they do which is harmful to creditors is likely going to end up bad for shareholders even if it results in a short pop in the stock price. If the equity upside is transferred from the old equity to new equity (creditors) that is not unfair, that is understanding the letter of the law and playing it to your advantage. Equity owners who get wiped out always view this as being unfair, but it isn't. I think they're just salty most of the time. Pages 71-72 of your linked doc were interesting - but, the senior creditors undervalued the Company relative to what? To what junior bondholders / equityholders proposed? Of course the latter will propose a higher valuation because it is in their best interest, but that doesn't mean it is an appropriate valuation.

This is not really as big of a deal as you might think it is, but as with most things..."it depends" the majority of the time. Its actually in the banks best interest for the company to remain solvent and out of bankruptcy, and they will accommodate (kick the can down the road) most situations. Covenants like maximum debt ratios and minimum interest coverage can be amended and waived by giving a fee to the banks or raising their interest rate (or tightening up other covenants as well). So if a company takes a temporary hit in earnings and becomes in danger of busting a covenant, it will almost always get amended or waived. A bank will only really give a firm "no" if the company has been playing fast and loose for a long time. Like if its the 2nd or 3rd time approaching the bank in a year with a problem or something. Even in situations where a company is on the brink of default I've been amazed how accommodating the banks have been when, in my opinion, they shouldnt have been. I've actually never seen a company put into bankruptcy because they breached their leverage ratio or something. In fact, WIN was not put into bankruptcy because of a covenant breach, the banks were in the process of working out a solution for them but they ran out of time. The majority of the time I see a company go into bankruptcy is because they have a liquidity problem of some sort. Staying with Windstream - they went into default because they had a liquidity crunch that prevented them from financing their ongoing operations and they sought bankruptcy relief to receive debtor in possession financing so they could keep their lights on while they worked the problem. Windstream is a highly capital intensive business with significant working capital needs. They have historically always kept a low cash balance and used their revolving credit facility to finance working capital. When the ruling came out that decided their sale leaseback transaction was a violation of certain covenants it created an event of default. An event of default is not always an automatic bankruptcy, there is sometimes a "cure" period where the company has a month or so to "fix" what is causing the default. The problem here was that Windstream's revolving credit facility becomes inaccessible if an event of default exists. Since they had a low cash balance and could not access their revolver, they could not operate their business. Since they couldn't operate their business they couldn't fix the problem. Therefore, seeking bankruptcy relief was the best option so they could access a new source of liquidity. To your comment "if the company has value greater than debt...banks put the company into bankruptcy anyway" this is not really true. Depends on who owns the bank debt. JP Morgans leveraged finance group (the agent on some leveraged bank debt) is not going to "opportunistically" put the company into default because what benefit would they get for it? They can't own the equity. Some hedge funds that own the bank debt might not even opportunistically put it into default because they'd rather just waive a covenant default in exchange for higher rates and give the company time to work their problem while owning a good piece of paper. Aggressive hedge funds will only do this from the stance of a bank lender only if the company truly has big problems, in which case their is likely zero equity value anyway. Equity investors tend to over value companys, and Im comfortable saying that as a blanket statement. The reason is because they focus on future growth opportunities and value based off that. Even a lot of equity investors that use "conservative" valuations are still aggressive by credit investor standards. So its easy to think that creditors might be pulling the rug out of the equity when you think its worth several turns higher than what they say, but in most cases I'd be they're probably right and you're too aggressive with the valuation. Of course, even credit investors come to different opinions on this. In bankruptcy its called a "valuation fight". It will literally come down to lawyers arguing to the judge the merits of one valuation method vs another. Most on this board are familiar with the ZINC situation - you can read the docket notes and see that the judge's opinion on value came down to cost of capital assumptions in one case. It really just comes down to the motivations of different creditor groups which I'm happy to get more into. This is a lot so far, but I'll round it out with another point. Someone below commented that you can't always see the terms of the bank debt. This is not true. Bank debt agreements are always filed with the SEC - I've never, ever been in a situation where I couldn't find the information publicly in SEC filings. The rabbit hole of credit investing and understanding bank debt covenants is very deep and (rightfully) appears to be a lot for those unfamiliar with it. It can even feel like its unfair. But the fact is that, in my opinion, if you want to be a good investor you absolutely need to understand this stuff. I have seen stock pitches, even on the valueinvestorsclub, where a big part of the pitch is a return of capital to shareholders that was actually prohibited by the bank debt covenants! This was a big reason why I went short equity and long bonds in FCAU last year. Every one bought into it because they expected a massive return to shareholders that was actually prohibited by their bank debt covenants. I figured that the return either wouldn't actually happen or would be smaller than expected. Its just a tricky concept. But I'm happy to answer questions over it!

a) most people are bad analysts b) the quality of local managers in Omaha, I'm guessing, is awful c) Buffett/Munger know a & b are true and don't want people to lose money so they always recommend not investing yourself and go into index funds and they say look even these smart people can't do it