New FBK

[Uccmal]

triedtested,  I agree that buying in the Debentures and solidfying the balance sheet through reducing the debt are desirable.  To a point. 

 

However, this is a company that operates in a deep cyclical industry.  Buying back shares is meaningless if they end up having to issue more at some date to solidify the balance sheet again.  Having a regular dividend would go much further to restoring my confidence in management and raising the share price IMO.  Then I can decide to re-invest or move the money to greener pastures. 

 

I am really not a fan of share buy backs unless they are done by companies who have the skill to do it right.  I would say that is definitely the minority of companies. 

 

SD,  I dont think management is particularly good.  They have communicated nothing to help the shareholders get a feel for the business and their plans, if any.  In addition, as per FFHwatcher... the web site is not complete.  This does not bode well.  IF they aren't planning on doing anything with it, they should just have a note and a referral link to Sedar.  As well, they allowed FFH to take them to the cleaners on the offering.  I am still perplexed as to how they took a company trading 50% higher, more at one point, and managed to bring down the stock price so effectively. 

 

All that being said I bought 10000 shares today at 0.98.  I am hoping someone will eventually recognize and remedy this situation.  Any simple calculations should show that book value is growing by the day. 

[cwericb]

Uccmal I agree 100% with what you say. Why buy back shares when that may have a relatively small impact on share price whereas a dividend seems to have a more immediate effect on share prices - and it is the perception that the company is healthy enough to pay out dividends that counts.

 

Further, the lack of a working web site in this day and age gives the perception that this company is a Mickey Mouse outfit. If these guys market their products the way they market their company, then they need help. It is almost like they are complacent with their positions in the company and don't want to do anything to draw attention to FBK in case that might change their personal stakes in the company.

 

On the subject of share price, I see posts now and again where the posters say they don’t care what the share price is, but it is value of the company they are interested in.  That may be fine in theory or for a fund manager with an infinite time frame, but it is a very idealistic viewpoint. Who knows when an individual one may want to or may have to sell his shares?

[triedtestedand]

cwericb/uccmal:

 

Agree that the website is an eyesore.  This is a basic requirement for any business ... needs to be fixed ASAP.

 

Regarding share buyback ... they just issued 40M shares as part of rights offering, so with 130M outstanding there's a lot floating out there, and given the historical trading volumes  (<200K shares/day) and the rules around company buybacks (e.g. something like 20% max of daily float), it's not going to make significant dent in things for them to start buying some back. 

 

Further, if anyone knows how to do buybacks, FFH will be the ones to help FBK.    Such share buyback may not attract immediate attention, or have immediate impact, but it can pay incredible dividends (pun intentional).    As example, ORH's board bought back a significant % of their shares over a couple year span which helped keep floor on a relatively thinly traded stock, helped increase book/intrinsic value per share during that timeframe, and benefited ALL of the long-term ORH shareholders when FFH ultimately took ORH private. (I've got nothing to say bad about FFH in their dealings with FBK ... they backstopped the recent deal, didn't force anything on FBK, and put up some cash.)

 

Here's part of my own thesis on this stock ... at this juncture, FBK is carrying about $10M of depreciation per quarter ... this is real, but it's non-cash ... the important thing IMHO for FBK is FCH, as it changes the quality of the balance sheet asset mix (more cash/less debt, less PPE) ... if last quarter repeats itself going forward ($10M earnings, $20M FCH), then on on an annual basis the company is trading at ~3.3x earnings, ~1.6x FCH, and some ridiculously low price-to-book ratio ... and this would only get better with a conservative share buyback.

 

This is doable ... the $CDN has traded a bit lower this quarter than last, the NBSK pricing is higher on average this quarter than last (and doesn't appear to be in imminent danger of collapse), the company is carrying about $2M/quarter ($8M/yr) less in interest costs after the refi, they're not spending money on websites and press agents, etc.  ;-)

 

 

 

 

 

 

 

[Rabbitisrich]

Has management discussed their tax asset valuation given recent profitability? If you assume a 35% tax charge on future earnings, then at $850 NBSK and $650 RBK against $59 per tonne distribution and $20 MM SG & A, the current market cap seems less absurd.

 

Fibrek seems to have a pretty decent balance sheet now with about $80 MM in cash, but I would rather see a dividend issue than a buyback given the inherent volatility of the business.

 

 

 

[FFHWatcher]

 

Agreed. The 42.94M of cash is $.33/share; at $1.06 you're getting FBK for $0.73 net - or 21% of BV. More noticeable is the Q2 vs Q1 2010 incremental change. The incremental EBITA margin was 34% - 2.5x the average Q2 EBITA margin of 13.5%. Should have paid up for that extra 200,000 shares  ;D

 

 

 

I don't follow this company closely, but it was my understanding that the $42.5m of cash is before the rights offering. The new loan and facility are for $153m which more than covers the old loan and facility (roughly $143.5m). So, wouldn't you add the $40m from the rights offering to the $42.5? That gets you to $82.5m of cash or $0.63 per share plus whatever they have earned since the end of Q2. 

 

That seems reasonable.  Probably close to 90 m cash as of today.  I expect they are not using the revolving credit lines as much as expected which of course will add more to cash flow directly.  So as of yesterday you could have bought this company at 20%.

 

I am sure of one thing.  FFH's adjusted cost base is about 3.50 per share, so dont expect them to let this go below $6.00 to someone else.  My major concern is that FFH will try to take it out but they could have done it anytime in the past year for cheaper so they wont likely now.  So that leaves a dividend.  I would guess about 0.02/quarter to start.  These guys are playing it safe so it will be awhile.

 

In the MD&A FBK said they used the proceeds from the Rights Offering to repay debt, not to augment cash (pg. 18).  ABL revolver has $10M outstanding out of a total available of $75M, as of July 16, 2010 (pg. 17).  Looks like new $78M Term Loan + $38M from Rights offering = $116M was used to repay the Old Term Facility that was due in 2012.  Used cash and $10M from New ABL Revolver to repay the old Revolver due 2010

 

Post June 30, 2010 - Debts

$78M Term Loan Due 2015 (Old Term Loan was $114M - down $36M)

$51.7M Debentures Due Dec. 31, 2011 (same)

$10M out of $75M on ABL Revolving Credit Line (Old Revolver was around $35M - down $25M)

$6M PSIF Interest Free Gov't Loan (was $4.5M - up $1.5M)

 

Debt is down significantly (approx. $60M) and I suspect that cash is also down (a lot?), to pay off Old Revolver (as new ABL Revolver only has $10M on it).

 

Did I miss anything? 

 

I also reviewed the board of directors and I can't see any Fairfax Financial representation. 

 

At last check, I recall FBK's cash position at something closer to $42M at at  the end of June.  Subsequent to the end of June, their (ABL) Revolver declined by $25M to a balance of $10M.  It is my assumption that FBK used $25M of their $42M to pay down the Revolver.  $42M - $25M = $17M.  All cash from financing's and share issuance was used to repay debt.  At mid July, I had their cash position something close to $17M plus whatever their operating cash flow might have generated, which I would assume that it would be used to pay down the remainder of the $10M revolver.  At the end of Sept., I am expecting/hoping to see ABL Revolver closer to $0. (not sure on timing of Capex, but it has been mostly ignored for 1-2 years) with a decent cash position due to current operating profits due to continued firm NBSK pricing.

[alertmeipp]

yes, and they are getting some free credit from gov to do upgrade and the power supply agreement coming online next year.

Management also believe they will get cheaper fibre next year.

Have got a chance to keep waste paper price recently.

 

Now, would someone take out that 1$ ask.

[Rabbitisrich]

:o I misread the use of cash. Management used expensive capital indeed to buy back $39 million in debt.

 

Is there any scenario that will pull the sell trigger for the FBK holders on the board? Does the thesis rely upon 2009 pricing as an exceptional trough, or is the takeover scenario necessary?

 

I'm so tempted to buy the company on a replacement value basis, but that seems like a roundabout way of hoping that someone will bite the takeover bait, since one could probably pick up the company cheaper if a suitor doesn't emerge and pricing reaches 2008 levels.

[Myth465]

This was a value trade for me. I expected share price to increase with pulp prices or a take over. With that said I plan to hold for a while. I would like them to run the company debt free, take a bit of cash to try to implement efficiencies, and to pay a div with the rest. A commodity company like this doesnt need debt. The share price would take care of itself and we would get paid while we wait. BV doesnt mean much to me.

 

I would sell if Management planned on doing something stupid with the cash. The next call will be very important.

[FFHWatcher]

This was a value trade for me. I expected share price to increase with pulp prices or a take over. With that said I plan to hold for a while. I would like them to run the company debt free, take a bit of cash to try to implement efficiencies, and to pay a div with the rest. A commodity company like this doesnt need debt. The share price would take care of itself and we would get paid while we wait. BV doesnt mean much to me.

 

I would sell if Management planned on doing something stupid with the cash. The next call will be very important.

 

Perhaps they need to know from shareholders that it is ok to spend $10k getting a website up and running.  My 13 year old would do it for $100 and have it ready for the weekend. ;)

[cwericb]

I sent them an e-mail yesterday telling them what I thought of their website and the impression it gives investors. I will not hold my breath waiting for a response.

 

Some may not see the importance of a functional, informative and attractive website but today "image" is important. It concerns me that FBK management don't seem to realize this and don't show an ability to keep up with the times. Admittedly this is a small thing but it does not give a good feeling about the way management regards technology.

 

What gets me is that they had a half decent site for SFK and really all they needed to do was make minor changes to their old site.

 

Anybody interested in giving them a call and complaining?

[alertmeipp]

guys, why bother about the website if the company is going to be sold out soon?  ;D

 

just jokes.

 

Why bother to take the old one down anyways? except the name change, nothing really change...

[FFHWatcher]

I sent them an e-mail yesterday telling them what I thought of their website and the impression it gives investors. I will not hold my breath waiting for a response.

 

Some may not see the importance of a functional, informative and attractive website but today "image" is important. It concerns me that FBK management don't seem to realize this and don't show an ability to keep up with the times. Admittedly this is a small thing but it does not give a good feeling about the way management regards technology.

 

What gets me is that they had a half decent site for SFK and really all they needed to do was make minor changes to their old site.

 

Anybody interested in giving them a call and complaining?

 

Call them.  I called them earlier this week and left a message for Patsie on her vm.  Companies need to know that shareholders are constantly analyzing them.  Telephone has more of an impact than an email, IMO.

 

I have also found a document that was posted to SEDAR last month.  It could explain Fibrek's Website situation, somewhat.  It is their Disclosure and Insider Trading Document.  It was updated on Aug. 4, 2010 and posted to SEDAR.  Below, I have copied the section on Electronic Communications.  They lay out, what looks like a great foundation for electronic communications.  I wonder when they will implement it?

 

7. ELECTRONIC COMMUNICATIONS

 

The use of electronic communications to disseminate investor information is

subject to Canadian securities laws and the Exchange’s Policy Statement on

Timely Disclosure. Accordingly, the rules previously outlined under this policy

also apply to electronic communications.

Although Fibrek management considers the Internet to be an effective tool to

broadly disseminate investor information, it is also of the view that poorly

managed electronic communication could lead to violations of Canadian

securities laws. Fibrek therefore considers it important to establish guidelines

regarding the use of electronic communications.

 

7.1 Fibrek website

Quality of information posted on the website

Fibrek’s website must not contain any misleading information. Material

information is misleading if it is incomplete, incorrect or omits a fact so as to

make another statement misleading.

In this regard, the Vice President Change Management and Supply Chain will be

responsible for ensuring that:

(i) Fibrek’s website contains all material information communicated to

security holders through traditional media;

(ii) the information is dated when posted on the Fibrek website;

(iii) the information is accurate in all material respects and, if not, that it is

corrected;

(iv) the information complies with Canadian securities laws;

(v) Fibrek’s website is updated regularly; and

(vi) obsolete information is stored on the Fibrek website, as provided below.

 

Website content

Investor pages

In order to clearly identify investor information, Fibrek will make a clear distinction

between pages containing investor information and those containing other types

of information, including promotional information.

Primary information

 

All of Fibrek’s timely disclosure documents must be posted in full on the investor

pages of Fibrek’s website. These documents include the following:

(i) annual reports;

(ii) annual information forms;

(iii) annual and interim financial statements;

(iv) press releases (favourable or not);

(v) material change reports;

(vi) dividend declarations;

(vii) notices of issuer bid;

(viii) management proxy circulars; and

(ix) any other communication with security holders.

Rather than posting the above documents on its website, Fibrek can alternatively

create a link to the SEDAR website in order to give internet users access to the

documents.

 

No material information may be posted on Fibrek’s website (and no link may be

created to provide access to such information) unless the information has

previously been disseminated in the manner described in paragraph 3.2 above.

However, once it has been disseminated, material information must be posted on

Fibrek’s website as soon as possible.

 

Supplemental information

Fibrek will also make all non-material information provided to analysts and

institutional investors available to all investors by posting it on its website (or,

where appropriate, by creating a link to enable internet users to access the

information), unless the volume or the format of such information makes posting

it on the website impossible or complicated. Supplemental information includes

the following:

(i) fact sheets or fact books;

(ii) slides of investor presentations;

(iii) transcripts of management investor relations speeches;

(iv) all other materials distributed at investor presentations.

Under no circumstances may Fibrek’s website contain analyst reports or any

other information from a third party regarding Fibrek’s business (in this regard,

please see paragraph 4.3 above).

 

Contact person

Fibrek’s website will include an e-mail link for investors to contact a Fibrek

representative directly. Fibrek’s authorized spokespersons will be responsible for

responding to investor requests and ensuring that no selective disclosure of

material information occurs (in this regard, please see paragraphs 4.1 and 4.3

above).

 

Archiving system

Fibrek’s website will include an archiving system to store obsolete information

and to which investors will have access.

The retention period for obsolete documents will vary based on the type of

information. Therefore:

(i) press releases, material change reports, dividend declarations and notices

of issuer bid will remain available in the archiving system for a period of

one year as of their date of publication;

(ii) annual and interim financial statements will remain available in the

archiving system for a period of five years and two years, respectively;

and

(iii) annual reports, annual information forms and management proxy circulars

will remain available for a period of five years.

 

Exclusion of liability

A legal liability exclusion clause with respect to the accuracy, timeliness and

comprehensive nature of the information posted on the website will appear at all

times on Fibrek’s website.

Links to third party websites

To ensure that Fibrek is not held responsible for the accuracy, timeliness and/or

comprehensive nature of information contained on a third party website, all links

from Fibrek’s website to a third party website must include a notice that advises

readers that they are leaving the Fibrek website and that Fibrek is not

responsible for the content of the other site.

Fibrek’s website may not contain a link providing access to analyst reports or the

analysts’ websites (in this regard, please see paragraph 4.3 above).

7.2 Chat rooms, discussion forums and electronic mail

In order to avoid selective disclosure of material information, Fibrek employees

are prohibited from participating in chat rooms7 or in discussion forums8 regarding

Fibrek or its securities. If an employee discovers a chat room or a discussion

forum involving Fibrek or its securities when surfing the Internet, the employee

must immediately notify Fibrek management so that it may take appropriate

measures, if necessary.

The work-related e-mail address provided to Fibrek employees belongs to Fibrek

and, as a result, all correspondence received and sent by an employee via e-mail

is considered to be part of Fibrek correspondence. Fibrek employees should

exercise considerable caution when using e-mail to send and receive confidential

information that is not protected by an appropriate encrypting technique and they

must be aware of the risks involved.

 

 

[FFHWatcher]

Sounds like Credit Suisse is expecting pulp supplies to tighten up, expects China demand to return due to low inventories, and has increased their NBSK expectation for 2010 and 2011.

 

http://www.ibtimes.com/articles/65447/20100924/credit-suisse-kimberly-clark-downgrade-neutral-price-target-earnings-estimates-valuation-huggies-dia.htm

 

CS downgraded Kimberly Clark for the following reason...(CK is an NBSK user)

 

"Primarily to reflect the $20-to-$35 per metric ton increases to our US northern-bleached softwood kraft (NBSK) forecasts (to $957 for 2010 and $970 for 2011), we are reducing our EPS estimates for Kimberly-Clark. While a weaker dollar could help Kimberly-Clark's performance, we believe higher pension costs could at least offset positive currency moves, especially in 2011," said C. Dillon, an analyst at Credit Suisse.

 

Earlier, Credit Suisse' global paper/packaging team raised its global market softwood pulp price forecast to reflect recent spot price increases in China and the less-severe price correction seen in other regions, Credit Suisse said in a report to clients.

 

In addition, the analyst demonstrated that global pulp markets would tighten substantially should China's pulp demand return to the long-term growth trend seen before 2009's spike. The analyst believes demand in China will soon rebound amid low inventories, muting the price correction.

[SharperDingaan]

 

Before looking at dividends, buybacks, etc. you might want to look a little closer at the terms of the Deb and managements emphasis since the rights offering.

 

SD 

[triedtestedand]

SD:

 

Cryptically enlightening as always!  Gotta make people work for it, huh?  Is the below what you're referring to?

 

a) From SEDAR, final prospectus for the debs (Q3/2006):

 

The Debentures will not be redeemable prior to December 31, 2009. On or after December 31, 2009, and prior to December 31, 2010, the Debentures may be redeemed, in whole or in part, from time to time at the option of the Fund on not more than 60 days and not less than 30 days notice, at a price equal to the principal amount thereof plus accrued and unpaid interest, provided that the Current Market Price is at least 125% of the Conversion Price. On or after December 31, 2010, the Debentures may be redeemed in whole or in part from time to time at the option of the Fund on not more than 60 days and not less than 30 days prior notice at a price equal to the principal amount thereof plus accrued and unpaid interest.

 

b) From SEDAR, final prospectus for the debs (Q3/2006):

 

The payment of the principal and premium, if any, of, and interest on, the Debentures will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Fund and its subsidiaries. The Debentures will also be effectively subordinated to claims of creditors of the Fund’s subsidiaries except to the extent the Fund is a creditor of such subsidiary ranking at least pari passu with such other creditors. The Debentures will not limit the ability of the Fund and its subsidiaries to incur additional indebtedness, liabilities and obligations, including indebtedness that ranks senior to the Debentures, or from mortgaging, pledging or charging its properties to secure any indebtedness.

 

c) From SEDAR, final prospectus for the rights offering (Q3/2010) ... changes to the deb provision:

 

Under the Existing Revolving Facility and the Existing Term Loan, the Corporation is restricted in redeeming Debentures for cash as permitted pursuant to the Debenture Indenture. The SGF Credit Agreement will allow the Corporation to redeem Debentures for cash provided its interest bearing debt to EBITDA ratio meets a certain minimum requirement. The ABL Credit Agreement will also allow the Corporation to redeem Debentures for cash provided it meets a certain borrowing availability requirement.

[alertmeipp]

I hope that can use this "bond bubble" opportunity to further lower their interest cost, their cost is like 7%-8%, I am hoping, with the money from the right offering plus the cash generated last 2 and next Q, they can issues bond at a lower rate to re-pay the existing one.

 

This one has a pattern of moving rather quickly to the upside out of the blue with no apparent reason. I feel the move will come soon. ::)

[Uccmal]

SD/triedandt, You'll need to enlighten me a little here.  I have trouble interpreting legalese and cryptic. 

 

a)Is it your implication that the company will announce within the next few weeks that they are going to redeem the debentures for the face value?  If that is the case it seem a reasonable course of action.

 

b)The debentures were issued at 1000 and trade at 100.  Was there some sort of change along the way?  What am I missing?

[woodstove]

One other bit on this topic ... the issue of new shares in the rights offering, has changed the share price at which the company can issue shares to redeem the debentures, if it chooses that route.  Don't know that number, and irrelevant if the debs are redeemed with cash.

[FFHWatcher]

One other bit on this topic ... the issue of new shares in the rights offering, has changed the share price at which the company can issue shares to redeem the debentures, if it chooses that route.  Don't know that number, and irrelevant if the debs are redeemed with cash.

 

Here is how I understand it...and a few opinions

 

1/ The new conversion price is $4.32/share.  Due to the fact that Fibrek issued warrants at less than 95% of the current market value to existing shareholders, an adjustment to the conversion price was required.  Conversion price went from $4.80 to $4.32.  Therefore, if the holders of the debentures converted their holdings to shares, for each $1,000 debenture, they would receive 231.4815 shares ($1,000/4.32 = 231.4815).  What holder of the debentures would convert and end up paying $4.32/share when the current market value is about $1.00?

 

2/ Fibrek could redeem the debentures before Dec. 31, 2010 if the shares of Fibrek are trading at 125% of the conversion price.  $4.32 x 125% = $5.40, therefore Fibrek would have to trade above $5.40 by Dec. 31, 2010 in order for Fibrek to redeem the Deb.  Therefore, there is a 99.9% chance that nothing will be done on the Debentures before Dec. 31, 2010, if I am understanding the document correctly.  Also, Debentures are currently trading at almost $100 or par.  I see that the documents show $1000 issue price but, as far as I can see, they trade based on $100 being par, not $1,000. 

 

3/  Debentures issued were about $51M @ 7% and due Dec. 31, 2011.  After Dec. 31, 2010 and up to maturity on Dec. 31, 2011, Fibrek can redeem the Debenture at the principle amount plus any accrued and unpaid interest.  Fibrek has the option of paying for the redemption of the convertibles (as per the original prospectus) in cash or a combination of cash and shares or just shares.  If shares are used, the holders of the converts would receive a share price of 95% of the current price on the TSX (they would receive a 5% discount).  For example, if there are $51M worth of debentures outstanding and the closing share price of Fibrek was $1.00, then Fibrek would issue 53.7M shares ($51M / [1.05 x 95%])

 

4/ Previous debt holders had covenants with significant restrictions on Fibrek repaying the Debentures.  The new term loan and ABL revolver both have restrictions on Fibrek repaying the debentures in cash that involve meeting certain EBITDA to debt ratios and certain borrowing availability requirements.  Those criteria are detailed in the the indenture.

 

The above is my understanding of the Convertible Debenture documents on Sedar.com

 

Why all the concern with the Debentures and the potential dilution or the potential opportunity?

 

1/ The share price of FBK is no where near the convertible price, so dilution isn't going to come from holders converting.

 

2/ Huge dilution may come about if Fibrek does not meet the EBITDA : Debt criteria and the borrowing availability requirements, assuming they have the cash available to redeem the debentures.  My best guess is, unless Fibrek is super flush with cash (ie. has >$75M in cash) and meet all the criteria in which they can pay cash, then they will more likely pay off the debentures with the maximum amount of cash possible with the remainder (if any) in shares, while meeting all the criteria required and listed in the term loan and ABL revolver.  The moving number, aside from the cash, will be the share price.  If the cash continues to improve, then the share price will likely also continue to improve, which leads me to think that Fibrek will put off the repayment of the Debenture until maturity, or a time sooner than that if they are able to generate enough free cash. If share price pops to $2. or more, perhaps management will feel that issuing some shares will not be as detrimental in diluting other shareholders (ie. 40M shares were diluted at $1.01, so diluting at $2. sounds about half as bad or twice as good?).

 

Fibrek could also go the refinancing route in 2011, but I am sure the Term Loan (SGF) and the ABL Revolver have restrictions on that.  It could end up that Fibrek uses $26M from cash and adds $25M to their SGF Term Loan via re-negotiation?  That would keep things pretty simple.

 

In either likely scenario, I don't see anything happening in 2010. 

50M share dilution is the absolute least preferred option. 

100% Refinancing is the 2nd least preferring option

50% refinancing and 50% share dilution is 3rd least preferred

50% cash and 50% shares (assuming >$1.50) is 4th least preferred

100% cash is most preferred option (mid to end of 2011) assuming they are cash flush and have full access to $75M ($0 balance) on ABL Revolver.

 

Any other opinions, suggestions, factual inaccuracies or omissions to the above post?

 

[finetrader]

if economic conditions stay the same, FBK should have a little bit more than 100M$ cash at end of year.

I would consider this a serious offense to shareholder if they dilute the share count to pay debenture with shares at 1$!

 

Probable scenario. FBK pay off the debenture with cash and still have about 50M$ cash on hand to navigate in difficult time.

 

that would give a capital structure:

50M$cash

130M share outstanding

150M$ debt

________

consider a share price at 1.5$ at year end, this gives an EV of 295M$. It is difficult to estimate future cash flow but let say they make half EBIDTA in the future than they did in 2010. That would put EBITDA at about 40M$ for a EV/EBITDA of 7. Seems reasonable to me. Especially for a company that do not have many capex, adequate and diminushing leverage, and that should not pay a lot of taxes due to tax shield provided by all the depreciation.

 

 

 

 

[Uccmal]

Thanks FFH Watcher/Finetrader for your comments.

 

Paying off the debentures before January 1st makes no sense.  I dont see them getting better than a 7% interest rate anywhere else.  I haven't been able to find the specifics of the SGF loan or the GE credit line fater at least 15 sedar filings (this is where a website would be helpful - I guess I am spoiled). 

 

Probably my preferred options are that they pay down the GE revolver first, buy back the debentures in the new year at face plus accrued, set up a system to keep 30 M on hand to see them through the next market downturn, and then start paying dividends with the extra cash.  Paying the debentures and clearing the line of credit may save them up to 2.5 M per quarter in interest payments.  Having a sustainable dividend would push the stock price up to book value or perhaps even beyond, which is of course what I am betting on.

 

The thought of them buying another mill at the top of the cycle terrifies me.  I am hoping this management is less "ambitious'. 

 

 

[FFHWatcher]

if economic conditions stay the same, FBK should have a little bit more than 100M$ cash at end of year.

I would consider this a serious offense to shareholder if they dilute the share count to pay debenture with shares at 1$!

 

Probable scenario. FBK pay off the debenture with cash and still have about 50M$ cash on hand to navigate in difficult time.

 

that would give a capital structure:

50M$cash

130M share outstanding

150M$ debt

________

consider a share price at 1.5$ at year end, this gives an EV of 295M$. It is difficult to estimate future cash flow but let say they make half EBIDTA in the future than they did in 2010. That would put EBITDA at about 40M$ for a EV/EBITDA of 7. Seems reasonable to me. Especially for a company that do not have many capex, adequate and diminushing leverage, and that should not pay a lot of taxes due to tax shield provided by all the depreciation.

 

 

 

 

 

If they pay off the debenture, how do you get debt at $150M?  Here is my math/thinking.

 

Mid July 2010 Balance Sheet

$78M (new) Term Loan

$10M - (new) ABL  Revolver $75M available credit limit (use is based on inventory and receivables)

$51.75M - Conv. Debenture

 

$75M new term loan + $38M rights offering = $113M in cash proceeds

June 30, 2010 balance on old term loan = $114M

They cancel out assuming $1M used from cash balance, leaving old revolver vs. new revolver

 

Old revolver was $35M at June 30, 2010.

As disclosed in MD&A (pg. 16), current ABL revolver balance = $10M and old revolver was discharged.

If $10M from new ABL revolver was used to pay off old revolver, than $25M of cash was used in that transaction.

 

Cash position was $42.5M at June 30th, 2010 subtract $25M (for some reason, I had $20M shown here instead of $25M on initial post?) to repay old revolver - 1M needed to discharge old term loan = $16.5M (adjusted down from $21.5 due to adjustment of $20M to $25M) cash as of July 16, 2010.

 

Another quarter is behind us in another week.  Last quarter they generated $20M in operating cash flow.  NBSK prices were similar or better in this quarter and currency was similar, perhaps we can expect $10-20M in operating cash flow (I haven't done any work on this, just a guess based on minimal changes aside from totally re-doing their debt and issuing a bunch of shares!!).

 

 

[SharperDingaan]

 

Most would agreed that FBK is probably not going to have any difficulty meeting the SGF covenant, or be buying out Debs before 2011. Most would also expect that for the rest of 2010 - its show me the money, & that the D/E ratio is continuing to fall.

 

Imagine that the Deb gets repaid in stock, & the interest in cash - a reasonable possibility as from Day 1 the intent behind the Deb has always been to repay the debt via an equity issue [whether by conversion or otherwise]. Assume $1/share (for easy calcs) - D/E drops drastically, & share count goes to 180M from 130M [ie: 38% dilution]. Add 50M to the 06/30/2010 equity, divide by 180M, & you get a BV of approx 2.74 -still above mgmts [re]adjusted option strike, but a lot more reasonable.

 

Then imagine they bought fiber via an acquisition, paid with ST debt, & consolidated at > 2:1. They would be back > the minimum $5/share for institutional ownership, with a low share count to boost P/E [< the 90M they started with], have re-established control over their costs, have done it largely independently of market forces, & ended up in a highly favourable position to term out the debt at very low rates if the economy suffered a temporary relapse. Far to elegant for FBK to come up with - but about par for FFH?

 

SD

 

 

[triedtestedand]

SD:

 

If there was intent to repay the debs in shares, and not cash, then there wouldn't have been need to secure (what is a new) provision in either the SGF or ABL credit agreements to allow repayment of debs in cash, correct?  And why would FFH backstop the rights offering only to get rediluted via repayment of debs in shares?

 

No, I think an Occam's razor style scenario will play out in the next 90-180 days:

 

- EBITDA and other provisions will be maintained

- ABL credit agreement balance will go to zero

- cash balance sheet will be built up

- early Q1/11 announcement to redeem debenture within Q1/11 timeframe

 

What then appears in late April is much stronger balance sheet ... at that point they consider mix of nominal share buyback, nominal dividend, and nominal cash build up (and/or SGF debt paydown) ... all very do-able if FCF continues at current rates (which itself is more than doable presuming NBSK pricing holds, wood chip prices continue to ease, interest payments drop, currencies don't start fluctuating wildly, etc.)

 

 

The market is in a "prove it to me" period ... those with a bit more uncertainty (vs risk) tolerance could catch what may be a really nice wave.

 

 

[doc75]

 

Fibrek has yet to negotiate a contract with their workers.  They have been without a contract since sometime in spring/summer 2009, if I recall.  THe August 2010 MD&A suggests that they were no negotiations yet.

 

Does anybody know what's going on here? 

 

 

There's a fair bit of pulp production coming on line, some of it coming from companies who are emerging from BK with lower labour costs.

Apparently the CEP union (under which most, or all, pulp workers operate) has decided that Abitibi is their "pattern setter" for contracts in Eastern Canada.  The Abitibi workers ended up taking a 10% wage cut in their first year of contract.  They *may* also have taken a 10% cut in their second year, but it was unclear from the contract I read.  After that, wage increases start up again.  It's a 5 year contract, and one would expect Fibrek's agreement to be similar. (?)

 

Does anybody know what percentage of cost/ton is attributable to labour?

 

My fear is that if they don't reduce production costs then they'll have a lot of trouble making money with the high Can $ once pulp prices invariably soften.  If the C$ were back at $0.85 we'd be making money hand over fist, but the great prognosticators suggest a level above par is more likely in the coming months.