Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?

[gokou3]

https://www.bloomberg.com/news/articles/2019-04-29/vancouver-s-once-rollicking-casinos-hit-by-dirty-money-crackdown

 

Meanwhile, Dundee has said it’s seeking to bring in a new partner to Parq by Tuesday. All told, investors had pumped more than C$1 billion in long-term debt and equity into Parq by the end of 2018, according to filings. Dundee, which put in C$142 million of that  :o :o, has said it doesn’t expect to fully recover its investment and that it could take another year or two before Parq is closer to stable operations.

 

"They don’t necessarily think they’re going to get their money back," said Hood. "But they do think that they’ll get a substantial portion back and that’s why they don’t just give up and sell it."

 

 

The first Parq reference in Dundee's filings is in their March 2015 AIF.

 

It must have taken some really impressive talent to lose dramatic amounts of money in a real estate development located in Vancouver over the past 4 years...

 

As a Vancouverite, can't agree more.  This will take someone like a Brookfield with multi-facet RE experience to turn around.

 

 

[bizaro86]

https://www.bloomberg.com/news/articles/2019-04-29/vancouver-s-once-rollicking-casinos-hit-by-dirty-money-crackdown

 

Meanwhile, Dundee has said it’s seeking to bring in a new partner to Parq by Tuesday. All told, investors had pumped more than C$1 billion in long-term debt and equity into Parq by the end of 2018, according to filings. Dundee, which put in C$142 million of that  :o :o, has said it doesn’t expect to fully recover its investment and that it could take another year or two before Parq is closer to stable operations.

 

"They don’t necessarily think they’re going to get their money back," said Hood. "But they do think that they’ll get a substantial portion back and that’s why they don’t just give up and sell it."

 

The first Parq reference in Dundee's filings is in their March 2015 AIF.

 

It must have taken some really impressive talent to lose dramatic amounts of money in a real estate development located in Vancouver over the past 4 years...

 

You'd think so, but Parq is not just a condo building. The size, complexity and uniqueness raise the uncertainty level dramatically. I think the mistake was doing something so far outside their circle of competence. These guys are not developers. They had no business getting involved. Parq has the fingerprint of Ned Goodman's later stage "Master of the Universe" persona that led to so much capital destruction. It's pretty sad that he succumbed to hubris after such a long and successful career and blew everything up.

 

I just think it's funny/sad that they could have bought into just about any other RE development in Vancouver and their $140 MM would be $200 MM+ instead of taking a big loss.

[doc75]

There are a number of articles out the past couple days regarding Parq.  Here's one from today.  Seems nobody is willing to say whether or not the April 30 payment was made:

 

https://biv.com/article/2019/05/parq-casino-future-uncertain-owner-mum-whether-it-can-service-its-debt

[doc75]

There are a number of articles out the past couple days regarding Parq.  Here's one from today.  Seems nobody is willing to say whether or not the April 30 payment was made:

 

https://biv.com/article/2019/05/parq-casino-future-uncertain-owner-mum-whether-it-can-service-its-debt

 

A follow-up today:

 

https://biv.com/article/2019/05/parq-vancouver-defers-key-interest-payment-credit-rating-slides-selective-default

[sculpin]

There are a number of articles out the past couple days regarding Parq.  Here's one from today.  Seems nobody is willing to say whether or not the April 30 payment was made:

 

https://biv.com/article/2019/05/parq-casino-future-uncertain-owner-mum-whether-it-can-service-its-debt

 

A follow-up today:

 

https://biv.com/article/2019/05/parq-vancouver-defers-key-interest-payment-credit-rating-slides-selective-default

“Parq is solidly on track to close a new equity and finance package, replacing our existing development and construction financing.”

 

She added in a subsequent email that the company’s debt holders “support” the potential refinancing and equity package.

 

“We are very excited about Parq Vancouver’s future and look forward to building on the initial success of our unique and award-winning property,” she said in the first email.

 

Hopefully this is achieved. Along with the common equitization of the pref liability, this will go a long way to further de-risk & remove uncertainty from DC.

[doc75]

Dundee will release Q1 results after market close on Friday.  The optimist in me hopes they have chosen a Friday release to ensure they can announce the Parq transaction.  The pessimist in me has followed Dundee for a while and knows better than to trust the optimist!

 

In other news, a whole boatload of shares hit the market next week.  It'll be interesting to see what they do regarding a repurchase plan, if anything. (Really not sure they have the liquidity to do much.)

 

 

[petec]

I suspect your inner pessimist has the edge.

 

That said I’m looking forward to adding next week at bargain levels.

[Rod]

I suspect your inner pessimist has the edge.

 

That said I’m looking forward to adding next week at bargain levels.

 

Just to be different I'm going to bet the stock goes up next week ;)

 

I think the best buying opportunity may be later in the year, or even in 2020. The big stock overhang may keep a lid on the price for a long time even if the company's value is clearly rising. If I can be confident the net assets are worth at least $3 without resort to hopes and dreams regarding some of the speculative stuff like Chad, I'd be a buyer. The preferreds may see a large rise in the interim.

[bizaro86]

I suspect your inner pessimist has the edge.

 

That said I’m looking forward to adding next week at bargain levels.

 

Just to be different I'm going to bet the stock goes up next week ;)

 

I think the best buying opportunity may be later in the year, or even in 2020. The big stock overhang may keep a lid on the price for a long time even if the company's value is clearly rising. If I can be confident the net assets are worth at least $3 without resort to hopes and dreams regarding some of the speculative stuff like Chad, I'd be a buyer. The preferreds may see a large rise in the interim.

 

I've got to think their recent history of an arguable coercive exchange offer and then a mandatory coversion to common at a huge discount will weigh on the prices of the prefs.

 

Also, I think there is a good chance that they suspend the dividend on the remaining pref issues after a tender. After they tender, it is really unlikely they'll return money to the common (dividend, etc). In that scenario, what is the upside to the Goodmans of paying pref dividends?

 

-they won't need to pay common dividends

-they won't be able to issue new prefs anyway

-the longer they don't pay the lower the effective interest rate on the prefs

-every dollar paid out to the prefs is no longer available for corporate priorities or executive compensation.

 

IMO, the logical thing for them to do is buy back some of the dilution in a tender and then stop paying the prefs. If they suspend the dividends on the prefs I think the price will tank.

 

[bizaro86]

Another way to look at this - what rate/LTV would you charge me on capital secured by a portfolio of Canadian juniors and illiquid private stakes? The terms would be the capital is permanent, and if I miss payments you can't call it, but I promise to eventually make any payments I miss. I have the option to repay my the money at two times the initial value, but no obligation to ever do so. Assume for the purposes of this exercise that my recent track record of investing in companies like that is very poor.

 

That at least rhymes with the current circumstances around the DC prefs. I think people anchor on the par value, which is risky in this case.

 

The prefs are likely way better than the common, but at current prices I think the risk-reward is still poor.

[Rod]

I suspect your inner pessimist has the edge.

 

That said I’m looking forward to adding next week at bargain levels.

 

Just to be different I'm going to bet the stock goes up next week ;)

 

I think the best buying opportunity may be later in the year, or even in 2020. The big stock overhang may keep a lid on the price for a long time even if the company's value is clearly rising. If I can be confident the net assets are worth at least $3 without resort to hopes and dreams regarding some of the speculative stuff like Chad, I'd be a buyer. The preferreds may see a large rise in the interim.

 

I've got to think their recent history of an arguable coercive exchange offer and then a mandatory coversion to common at a huge discount will weigh on the prices of the prefs.

 

Also, I think there is a good chance that they suspend the dividend on the remaining pref issues after a tender. After they tender, it is really unlikely they'll return money to the common (dividend, etc). In that scenario, what is the upside to the Goodmans of paying pref dividends?

 

-they won't need to pay common dividends

-they won't be able to issue new prefs anyway

-the longer they don't pay the lower the effective interest rate on the prefs

-every dollar paid out to the prefs is no longer available for corporate priorities or executive compensation.

 

IMO, the logical thing for them to do is buy back some of the dilution in a tender and then stop paying the prefs. If they suspend the dividends on the prefs I think the price will tank.

 

Sure, but if they were going to suspend the dividends, why haven't they done it by now? You could have made the same argument at any time during the last 5 years and yet it hasn't happened. So it doesn't seem like something they want to do. And it's not something they need to do. Their situation is a lot more stable than it was, and they have cut a ton of costs out of their overheads. Converting the E's cut $6 million in dividend obligations by itself. So, if they were to suspend dividends now it would not be from necessity. I think there would be some pretty heavy downsides to doing that. One, Jonathan Goodman is trying to build a capital markets business with smaller mining companies. It would not help much to build the brand if they cut off dividends to their own preferred shareholders for no reason. I think the risks to the prefs are more that the investments they make going forward are bad, and/or DPM gets into big trouble.

[petec]

I find it unlikely they’ll suspend the dividends on the prefs. I’m not sure the savings would be worth the ensuing noise, possible legal challenges, etc. By your thinking it’s arguably logical for every pref issuer to suspend dividends, but they don’t because there are hidden costs. By contrast there was logic in the conversion, which I regard as a good decision and one I would have taken.

 

I’d rather own the prefs, but I can’t. I have a smallish position in the common where I quite like the value. If it drops substantially from here I’ll likely add.

[bizaro86]

I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

 

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

 

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

 

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

 

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

 

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

 

[Rod]

I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

 

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

 

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

 

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

 

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

 

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

 

Anythings possible I guess, but are you aware of other companies that have done this? That is, cut off dividends to preferred shares while they have ample liquidity?

[bizaro86]

I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

 

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

 

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

 

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

 

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

 

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

 

Anythings possible I guess, but are you aware of other companies that have done this? That is, cut off dividends to preferred shares while they have ample liquidity?

 

No. But I'm also not aware of any other company that converted prefs to common when they had "ample liquidity"

 

I'm not saying they will do this, just that it's a risk worth considering before taking a position in the prefs. I think the market will consider it and keep the pref prices relatively low.

[bizaro86]

The arguments for a buy of the prefs right now seem very similar to me to the arguments in favor of buying the common at the start of the thread. There is a big sum of the parts discount on a bunch of low quality assets. The company is controlled by multiple voting shares, and the track record of investments is poor. The reason for the poor track record is visible (they keep buying highly speculative stuff). The DPM stake covers the prefs, sure, but I wouldn't want to be in the business of giving non-recourse margin loans on junior mining shares...

 

None of that has changed. I actually think from a long term bull position the common makes more sense than the prefs. If they keep destroying value at their current rate both will be zeros eventually. But if the oil in Chad comes in the common is probably a multi-bagger, but the prefs have capped upside. That potential had also capped the size of my DC.A short...

[petec]

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

 

Bear in mind the unpaid dividends would accumulate on the BS and impair the value of the common. At some point there’d be significant pressure to pay, if things go well. And if they don’t both classes are f***ed anyway.

 

I do agree however that there is a risk, however small - they clearly and rightly prioritise the common over the prefs.

 

I seem to remember the prefs have votes under some circumstances. That may include when they’re not being paid. Don’t imagine it’s enough to wrest control from the Goodmans though.

 

My bigger objection to your theory is: why bother? The convertible series was a real problem for liquidity. The remaining dividends aren’t. It would wreck their last shred of credibility for no benefit.

 

Still, interesting thought & discussion.

[bizaro86]

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

 

Bear in mind the unpaid dividends would accumulate on the BS and impair the value of the common. At some point there’d be significant pressure to pay, if things go well. And if they don’t both classes are f***ed anyway.

 

I do agree however that there is a risk, however small - they clearly and rightly prioritise the common over the prefs.

 

I seem to remember the prefs have votes under some circumstances. That may include when they’re not being paid. Don’t imagine it’s enough to wrest control from the Goodmans though.

 

My bigger objection to your theory is: why bother? The convertible series was a real problem for liquidity. The remaining dividends aren’t. It would wreck their last shred of credibility for no benefit.

 

Still, interesting thought & discussion.

 

Those are all completely reasonable points, and I don't disagree with any of them.

[petec]

Do any of the DPM followers have a view on whether it might begin paying a dividend? It’s trading on a fat 2020 FCF yield with little debt, but I don’t know about it’s capex plans.

 

 

[doc75]

I haven't seen any PR from Dundee themselves, but it appears they've sold the Sotheby's franchise rights, which is the primary asset of Dundee 360:

 

https://www.newswire.ca/news-releases/peerage-realty-partners-enters-into-agreement-to-acquire-sotheby-s-international-realty-canada-from-an-affiliate-of-dundee-corporation-841978915.html

 

They recorded an $8m impairment on this asset last quarter so I would expect the transaction to be valued at approximately book.  The entirety of Dundee 360 was carried at a NAV of about $15m as of Dec 31.

 

 

[bizaro86]

I haven't seen any PR from Dundee themselves, but it appears they've sold the Sotheby's franchise rights, which is the primary asset of Dundee 360:

 

https://www.newswire.ca/news-releases/peerage-realty-partners-enters-into-agreement-to-acquire-sotheby-s-international-realty-canada-from-an-affiliate-of-dundee-corporation-841978915.html

 

They recorded an $8m impairment on this asset last quarter so I would expect the transaction to be valued at approximately book.  The entirety of Dundee 360 was carried at a NAV of about $15m as of Dec 31.

 

Just came here to post this. Must not be material to Dundee given no PR from them. Back of the envelope from the very limited data provided I would guess a high single digits millions price.

 

They paid ~$50 MM for vox360, although I think some other stuff came with that. They paid in shares though, so the shares that they paid out are only worth ~$3MM now.

[sculpin]

Dundee Precious Metals BUY

DPM-TSX

Last: C$4.11

Target: C$6.50

 

FLASH: Q1 earnings weaker than expected, but operationally a good quarter

 

DPM reported Q1 results after pre-releasing production last month (refer to our FLASH note of April 8). Adj. EPS came in at a loss of $0.01 below our estimate of $0.04 (consensus at $0.04). This is largely explained by higher G&A (partly due to higher share-based compensation) and higher finance expense (as the company amended the RCF which accelerated amortization costs). That said; operating profit of $35.4mm was largely in line with our estimate of $33.4mm. CFPS before changes in working capital was $0.09 vs our forecast of $0.12 (consensus at $0.12).

As pre-reported, in Q1 Chelopech produced 43k oz gold (39.5k oz in concentrates sold) and 8.0mm lbs copper (6.3mm lbs in concentrate sold). Cash cost of $628/oz gold sold in copper concentrates (inclusive of pyrite oz) was modestly higher than our estimate of $605/oz.

At Tsumeb, 62.8kt of concentrate smelted in Q1 had a cash cost of $370/tonne smelted better than our estimate of $440/t (and also sequential better than $413/oz in Q4). The smelter generated strong EBITDA of $10.5mm. Timing of expenditures saw little capex spent this quarter (only ~$0.3mm), but the company is still guiding for full-year sustaining capex in the range of $14-18mm at Tsumeb. Annual maintenance shutdown is planned for Q4 based on the scheduled 18-month campaign.

Guidance is unchanged: DPM reaffirmed guidance expecting production in the range of 155-187k oz gold and 33-39mm lbs copper at Chelopech and initial production of 55-75k oz at Krumovgrad. Consolidated AISC in the range of $675-$820/oz.

Krumovgrad continues its ramp up towards commercial production in Q2 after first gold concentrate was achieved in mid-March. At the end of Q1, total capex incurred on the new mine was approximately $152mm, with an additional $12mm-14mm remaining (tracking well within budget of $164mm-$166mm).

Impact: Slight negative on weaker than expected EPS and CFPS

 

Given the weaker than expected EPS and CFPS, we would expect the stock to underperform today. That said, operationally, Q1 was a good quarter with operating profit largely in line with our expectations. A good start to the year with production and cash cost positioning DPM on-track with guidance.

With Krumovgrad now ramping up, we expect production (and cash flow) to increase in the second half of 2019.

Recommendation: Maintain BUY rating and C$6.50 target

[sculpin]

Dundee Corporation Announces Completion of Refinancing of Capital Structure by Parq Holdings L.P.

 

TORONTO, May 10, 2019 (GLOBE NEWSWIRE) -- Dundee Corporation (TSX: DC.A) (the “Corporation” or “Dundee”) today announced that Parq Holdings Limited Partnership (“Parq Holdings”) has successfully completed the refinancing of its capital structure. This transaction includes the refinancing of the first-lien and second-lien loans with a fixed rate, long-term financing structure, thereby significantly reducing the interest payments and covenant requirements.

Parq Vancouver is an integrated complex which is now fully operational and no longer encumbered with the onerous construction financing typically in place during the development phase.

 

“The refinancing of its capital structure provides Parq Vancouver with the financial stability and flexibility needed to continue delivering world-class service to its customers,” said Jonathan Goodman, Chairman and CEO, Dundee Corporation. 

 

In conjunction with the refinancing, Dundee and PBC Group welcome a new equity partner which has acquired a stake in Parq Holdings. The new partner is a domestic Canadian company with hospitality holdings in several markets and which will assist in Parq Vancouver’s ramp up and optimization.

[bizaro86]

I wonder who the new partner is. My guesses would be either Brookfield or Morguard, but could be someone private.

[doc75]

I wonder who the new partner is. My guesses would be either Brookfield or Morguard, but could be someone private.

 

I can't remember the wording but it seemed to me that their language on the call made it pretty certain the new Parq partner is private.

 

I feel pretty strongly now that the series 2 & 3 dividends should not be taken for granted.  They've cut G&A, but they're still burning through plenty of cash and there's no signs they'll be generating any in the next few years.  They're not going to sell DPM to pay dividends.  After they sell off the crap assets,  I think it would be an easy decision for them to preserve liquidity (and their salaries) by turning off the divvies.

 

After listening to the call, I'm also very skeptical of any type of meaningful issuer bid materializing.  They're very noncommittal and it sounds like they won't even make a decision until after getting a decision on their outstanding CRA issue.