gfp
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Posts posted by gfp
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In the United States a company can stay under creditor protection for a very long time in certain cases. W.R. Grace, a company that made Ted Weschler very wealthy, was in bankruptcy for something like 12 years. That said - it costs a lot in professional fees and other expenses and these failed deals have breakup fees (like quarter billion dollar break fees) - and all the money spent on that type of stuff reduces the amount available for creditors. And since Oncor is completely "ring-fenced," it's not like time is on creditors side with a profitable business paying dividends up to the bankrupt parent. Oncor can go up in value over time, which might help get a higher price - but it won't send cash up to the EFH entities until it is sold.
Ultimately, Berkshire Energy is betting that their deal is the only deal that gets by regulators and Elliott is betting that they can bluff BRK into raising. Elliott is extremely unlikely to come up with a deal that wins over regulators - but we will see...
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All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF. And when they do, it's a whopper - huge APRs. So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%! These are not the most sophisticated users of credit. I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them. But they don't.
They do make a % of everything you buy using the card. So you've probably made them quite a bit of money over the years. Yes they would prefer interest on top of it but it's not a deal breaker.
So I always wondered about this and haven't dug deep enough to answer it for myself. I always assumed that the 5% being paid to me is being split between the merchants (say Lowes) and Synchrony. If that is the case, SYF is not getting a 'swipe fee' like a regular card network card would get. The cards I am describing cannot be used at retailers other than the one on the card and have no Visa, MC, etc affiliation. Someone is covering the 5% to me and I really doubt that SYF is getting a 'swipe fee' net of that 5% - i.e., it would really surprise me if Lowes or Amazon ate the entire 5% and then paid SYF a swipe fee on top of that (even if the swipe fee was below market rate).
Do you know for sure or are you also speculating?
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Small deal for Iscar -
Also a news article talking about how BHE / CalEnergy is less enthusiastic about their Salton Sea geothermal business - finally cancelling a planned plant they had delayed and scaled down a few times -
Also - Elliott buying more EFH debt to try and block Berkshire's deal for Oncor..
https://www.wsj.com/articles/elliott-management-buys-slice-of-energy-future-debt-1502919644
Next major court date is August 21st -
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I haven't heard any of them mention Synchrony. Berkshire's position is probably through Todd or Ted. Todd seems to be the financials specialist of the two, but who knows. Synchrony declined during the past quarter and offered an entry point for anyone interested in their business. They have a very very healthy net interest margin despite their growing charge-offs/delinquencies. To me it seems likely that they will be acquired by a larger financial firm with even lower costs on deposits, but maybe I am missing some reason they are unlikely to be acquired.
As for the products, we use two of their products. The one we use most is their Lowes card that can be used only at Lowes. My wife is a real estate developer / landlord, so we put a lot of money through Lowes and Home Depot. The Lowes card gives you 5% off at the register, which is more attractive than some later statement credit - as I can see the price discount right on my receipt. In our town, the sales tax is just about 10%, which means using SYF's card at Lowes gives me half the tax back. Lowes and Home Depot have algorithms to exactly price match identical items they both carry, so the absence of a similar offering from Home Depot often decides which store we drive to for the materials list. The card is paid in full every month through their online portal. They've never made a dollar off of us, but we have saved a couple thousand. Lowes saves the CC processing fee if our purchases had been on Visa/Amex/etc, which helps offset the 5%.
The other card we use is the Amazon Prime Store card. It is one of the several cards amazon offers with discounts. It is not the original one, but a more recent entry. It is set as the default payment method at Amazon and it pays 5% back on anything purchased through amazon or their 3rd party sellers. It pays the 5% in the form of a statement credit on your next bill, so it works differently than the Lowes card but the economic effect is the same. We buy a lot on Amazon and 5% is a better discount than our other cards would offer. There are other 5% cards that partner with Amazon, though, and those other cards can be used at more than just Amazon. Same deal as above - pay it off every month in full and SYF never makes a dollar.
The other product I have seen but not used is their growing "Care Credit" program. My wife's friend used Care Credit to pay for some expensive dental work with a 0% payment plan. She kept to the terms and paid it off at 0%.
All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF. And when they do, it's a whopper - huge APRs. So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%! These are not the most sophisticated users of credit. I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them. But they don't.
One thing I have read is that SYF offers customers pretty low credit limits and is quick to ding your credit score if you mess up. Both of those lead to some unhappy (ex)customers.
So who ends up buying them? It's not a squeaky clean reputation business and the relationships - like the Amazon deal - can (and probably will eventually) be lost.
Datorama updated: http://www.dataroma.com/m/holdings.php?m=brk
Baupost also bought SYF... did any of these guys talk about what/why they like it?
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Big factor is that repair costs (all those sensors in the bumpers, fenders, mirrors, etc) have gone way up. Lawsuit costs continue to be a very big portion of rates. Accident frequency and severity has only increased since all these safety features have been introduced. Likely because of the large screen smart phone. Auto insurance will always be required because of the liability aspect.
GEICO has been making a calculated bet to sacrifice near term profits in order to grow their business through this period - customer growth at GEICO has been outstanding recently and new customers are not profitable their first year with GEICO. I think it's a good strategy as GEICO will retain those customers if history is a guide.
GEICO quoted me a policy at a significant discount to USAA, which is anecdotal as far as how aggressive they are being on price right now. USAA isn't known as a pricey insurer.
I think people are making mistake thinking that you need level 4-5 autonomous driving for the number of accidents to drop significantly and impact insurance companies. IMO, active collision avoidance systems are likely to drop the number of accidents almost as much as the level 4-5 and they will come much sooner.
Of course, you still need 10 years+ for the whole auto inventory to get collision avoidance, so I'd say there are ~10 years+ for insurance companies. Also, there will be time IMO when the insurers still charge higher premiums and get extra profits even while the accidents are declining. (The corollary though is last year when Buffett said that Geico had lower margins due to more distracted driving (presumably)).
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Gen Re did a quota share deal in Australia that will see them take 60% of AMP's retail life business onto their books -
It has been interesting to see the moves and growth that have started since Ajit and Kara Raigul took over.
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Nice camping on the beach out there DD! Several years ago a friend and I rode motorbikes out there and hiked out to camp on the beach for a few days. All of a sudden everyone but us left and we were too stupid to investigate why. Next 24 hours was camping through what seemed like at least a tropical storm level thing.. Still a lot of fun and we caught some fish with whatever those 'sand flea' things are you find in the beach with a rake. Important lesson, always check the weather when you ride motorbikes to camp on a barrier island...
Perdido Key, FL
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Some insight into what Oncor charges for their distribution in this article -
http://www.utilitydive.com/news/oncor-drops-proposed-minimum-charge-for-der-customers/448724/
Also, confirmation in the recent 10-Q that Berkshire expects to buy out all of the minority interests in Oncor under separately negotiated deals, bringing the total deal to over $11 B for 100%.
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Insurance Insider has a good summary of the insurance results - Gen Re is growing premiums under Ajit's leadership, and a previous note mentioned that the TransRe partnership has produced $350m in new premiums to GenRe.
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AIG deal pushes Berkshire to $22mn underwriting loss
Dan Ascher
Berkshire Hathaway's record-breaking $34bn retroactive reinsurance deal with AIG has pushed the Warren Buffett-led firm's underwriting group to a loss in the second quarter.
The segment, which includes property and casualty as well as life (re)insurance business, swung to a $22mn underwriting loss from a $337mn gain reported for the year-ago period.
Berkshire's collection of underwriting companies, which include personal lines carrier Geico and reinsurer Gen Re, were dragged into the red by a $400mn underwriting loss within Berkshire Hathaway Reinsurance Group, including a $331mn pre-tax retroactive reinsurance deficit.
Berkshire blamed the bulk of that $331mn loss on an unspecified "deferred charge amortization" related to the AIG transaction, as well as another unnamed retro deal written at the end of last year.
The reinsurance group was pushed further into deficit by its life unit which clocked a $121mn loss, primarily due to foreign exchange fluctuations for periodic payment annuity business.
Losses in Berkshire's reinsurance group more than offset gains in all of the financial behemoth's other underwriting units.
Gen Re profits swelled to $25mn from the mere $2mn the direct reinsurer reported this time last year. However the result paled beside the carrier's life and health division which swung to a $39mn profit from a $21mn loss in the second quarter of 2016.
A year ago, Gen Re's property and casualty division put the reinsurer into the black with a $23mn profit. But in the just-ended quarter the unit posted a $14mn loss.
Nevertheless, Gen Re reported a 25 percent uptick in P&C premiums earned for the period, which grew to $777mn driven by more income from direct and broker markets as well as greater participation on renewals.
Meanwhile Buffett's primary underwriting group, which includes National Indemnity Company and Berkshire Hathaway Specialty Insurance, reported a 8.9 percent increase in premiums written, which were $1.8bn for the period just gone.
The group's profitability improved delivering an underwriting gain of $232mn, up by a third on the result posted at this time last year.
Meanwhile, despite a $1bn or 16.7 percent increase in premiums written at Geico, profit fell almost 21 percent to $119mn.
Berkshire said that increases in average Geico policy premiums had failed to offset inflation in claims costs.
The loss produced by the Reinsurance Group's deficit contributed to Berkshire's earnings miss for the quarter, as it posted disappointing net income of $4.262bn, or $2,592 per class A share.
Analysts had expected the company to earn $2,858 a share, according to the average of four estimates collected by MarketWatch.
On an operating basis, the company's profit fell 11 percent to $4.12bn, Reuters reported. The news service said that equated to $2,505 per class A share while analysts had anticipated $2,791.
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Did you own the US stock market indices at a lower level? If so, why did you sell? Is Berkshire Hathaway not diversified enough to sub into a 'wealth preservation' portfolio?
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Big US banks are still inexpensive, Berkshire was cheap two months ago, Fairfax was/is way out of favor, Biglari Holdings is reviled but priced less than liquidation. Did you just get a bunch of new capital to put to work? Seems like there's been plenty to buy and plenty to sell in the last half year.
How much money has been lost by those on this board that continue to try to trade the coming market crash instead of sticking to what works for them. This guy says he's a long term investor and you want him to go long volatility?
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FT has an article about the power imbalances on the US west coast and Berkshire Energy's membership in the regional marketplace for excess energy in the region -
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These are the official merger docs by the way:
https://www.sec.gov/Archives/edgar/data/1081316/000119312517224109/0001193125-17-224109-index.htm
Sounds like there are 'drag along rights' that will compel the 20% minority holders to sell to BRK Energy as well.
on a side note, I wonder if Walter Scott and the other minority owners of BRK Energy (90% owned by Berkshire) will be contributing their share of cash for this deal or if a.) Berkshire ends up owning more than the current 90% - or - b.) BRK Energy doesn't need to raise very much cash for this deal because of access to attractive credit.
edit: sounds from the merger agreement like Berkshire Hathaway Energy intends to issue 4.5% preferred stock to finance part of the deal, 20 years fixed rate, floating thereafter. Wonder if BRK will take up that offering or if it will be publicly traded. Sounded like they intended to register it, which sounds like a public offering.
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What is Paul Singer thinking? If NextEra can't get Texas regulatory approval, there is no way his hedge fund can put together a higher bid that actually closes... Texas wants BRK to own it.
edit - texas regulators and major 'stakeholders' already informally blessing the berkshire deal. good luck getting anyone else past the PUCT -
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The funny thing about the initial investment in the leveraged buyout bonds (the $2B face value) was that before they blew up, David Sokol was somewhere in an interview claiming that he brought that 'deal' to Buffett and taking 'credit' for it. Buffett of course takes full responsibility for "totally misreading the probabilities of loss" (his words) - as he should. But it sort of gentlemanly on Warren's part to never mention it was a Sokol deal / lead / whatever you want to call it...
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Didn't they also buy a "stick built" home builder in Colorado? Sort of intriguing to me, given some prior comments he's made about his belief that the housing market will perform this year. Bill Miller is really bullish on homebuilders too, if memory serves.
Clayton has been buying traditional site built homebuilders pretty steadily for a few years now. Ever since they basically reached their limit as far as market share in manufactured homes goes. Clayton has a very high market share of their industry when you include all the acquired marks. The Colorado deal link is a few posts up I believe. There is a big shortage of skilled carpenters in Colorado and a lot of other markets, which is constraining and slowing the homebuilding business. But that can be a positive. Seems like half the people I know are moving to Colorado these days. Must be nice out there! (or they're all potheads)
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It's also important to remember that Berkshire only has a deal for 80% of Oncor at this time. Next-Era's deal was quoted in enterprise value terms and they had also made a deal to buy the other 20% from OMERS and other partners.
One would expect that Berkshire will try to also make a deal for the minority interest with OMERS and the other partners, but they might not be able to make the deal at the same valuation.
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News says Berkshire is about to buy Oncor
https://www.wsj.com/articles/warren-buffetts-berkshire-nears-a-deal-to-buy-oncor-1499363036
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Clayton bought another traditional homebuilder- this one in Denver:
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They won't owe cash taxes on the BAC shares until they are sold. It is possible that something may pass through the income statement on it, I don't know. Also, $5 billion will not come out of cash, as it is a cashless transaction inasmuch as the BAC preferred shares are being swapped and cancelled to exercise the warrants. $5 billion will come out of "other investments". There may be a redemption premium that gets booked as a profit on the pref shares, I haven't looked at the purchase agreement in a long time. All the others had kickers on redemption. I wonder why warren wouldn't continue to hold the 6% preferred with so much excess capital earning 1%. I guess it would be counted at over 10% ownership since the pref is technically equity.
Also, there may be some small step up in the book carrying value of BAC if they were using an illiquidity discount in addition to black scholes to mark the warrants to "market". They will now be a level one asset vs an un-traded derivative asset.
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3 month till today 30.6.2017
Estimated Operative Gains: 5 B
Estimated Gains Portfolio: 2,77 B
results in:
BV = 301,17 B
BV B-share = 121,859 US$
KHC adjustment: 27,887B (marketvalue today) - 15,3B (BV KHC) = + 12,587 B
results in:
BV = 313,757 B
BV B-share = 126,952 US$
Seems like you should take taxes into account if you are going to adjust book value for estimated gains
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Fairfax announced they sold all their Tembec
https://www.reuters.com/article/brief-fairfax-sells-its-remaining-positi-idUSASA09UD5
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Fox Business is running a story that has some interesting detail about Ted Weschler's activity in Germany working with Berkshire's German "scout", the banker that brought them the online motorcycle accessory retailer -
edit:
I see it is actually a wall street journal story, with pictures for those that subscribe -
https://www.wsj.com/articles/warren-buffetts-scout-inside-europes-biggest-economy-1497951001
BRK: Oncor Acquisition
in Berkshire Hathaway
Posted
Elliott appears to want $400 million more, but it may be affected by whether the judge rules that NextEra is entitled to their breakup fee. NextEra, understandably thinks it is owed the cash but they probably could have closed the deal if they were willing to budge on the ring fencing they knew the regulators wanted. If Elliott "wins" and both Berkshire and NextEra get $270m, then Elliott doesn't really "win" until their equalization plan results in a capital gain down the line.