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Levered Equities


marazul
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In this new ZIRP/NIRP world opportunities are scarce. One area I have been looking at is companies that have the ability to take advantage of this low interest rate environment. These type of companies usually have stable revenues that permits them to lever to 3-5x EBITDA. We are left with a capital structure similar to a PE owned company. The pros of this strategy is that debt is very cheap and good results can amplify returns. On the other hand, leverage works both ways. However, this seems to be an area of opportunity in this environment. Any thoughts on this? Any good names you would like to share? A good example might be Liberty Global or SCI.

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In this new ZIRP/NIRP world opportunities are scarce. One area I have been looking at is companies that have the ability to take advantage of this low interest rate environment. These type of companies usually have stable revenues that permits them to lever to 3-5x EBITDA. We are left with a capital structure similar to a PE owned company. The pros of this strategy is that debt is very cheap and good results can amplify returns. On the other hand, leverage works both ways. However, this seems to be an area of opportunity in this environment. Any thoughts on this? Any good names you would like to share? A good example might be Liberty Global or SCI.

 

If you started doing this in 2010 you would have made a lot of money.  If you do it now you will likely lose a lot of money.

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Well there's Michael Burrys Nexpoint Residential Trust which has a lot of floating rate debt (he might have somewhat of a portfolio hedge with 25-30 pct. finansials). I like Blucora and DirectCash. The most obvious are telcoms as you mentioned yourself. Packer posted a couple of telcom ideas; GNCMA and ALSK as well as Greek Intralot (non-telcom). There's also HCOM. Alliance Healthcare is another very levered equity stub. Transdigm as well as VRX/Concordia Healthcare also comes to mind.

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