SFK pulp

[finetrader]

I did get a reply be email from IR saying the discount apply to all investors. And the way I read the prospectus, it is confirming it. The 20% discount is a discount from the average price of the last trading days(whether it's 5 or 40 days).

 

The subscription price = the weighted average price of the last trading days - 20%. The subscription price is the same for all investors.

 

I myself too find that prospectus can be confusing..

 

 

 

[dowfin1]

Agree that the subscription price is the same for everybody.  But oversubscribing shareholders get to by additional shares without having to purchase rights on the open market, and they get these shares before of FFH's standby purchase privilege because FFH has elected to waive its oversubscription rights. p. 19

[cwericb]

The question of the 20% discount on the rights offering has been debated on the board for several weeks now and I must be missing something.

 

It seems obvious to me that the discount must apply to all shareholders simply because if there was not a discount involved (or some other substantial advantage), why would any shareholder want to purchase under the rights offering?

 

We are being offered the opportunity to buy one right (or share) for every (3?) that we own. There has to be some enticement for shareholders to buy more shares.

 

The way I see it is this. I assume that FBK wants to raise cash to pay off debt. They could either issue more shares on the general market OR give their shareholders (including FFH) an opportunity to increase their holdings at a discount to the market price.

 

As far as dilution is concerned, if they use the proceeds of the rights offering to retire debt already owing, is that really dilution? That is, if they sell $40 million in new shares and reduce debt by $40 million, is not the company then worth $40 million more?

 

Clever idea asking the shareholders to chip in and pay out company debt with the reward of decreasing debt and interest expense in the hopes of increasing share value for all.

 

As I said at the start, am I missing something?

[SharperDingaan]

 

The preliminary prospectus is the bible, there is no ambiguity, & it outlines the details of the transaction. What IR inferred 2 weeks ago is irrelevant, the terms of the offering have simply changed since they spoke.

 

The price is defined by formula. It will be no worse than the lower of the 40 day VWAP, or the 5 day VWAP immediately prior to the filing of the final prospectus (p18). The actual number will be known when they file the final prospectus - & they have untill Oct-31 to file. We know this is the minimum price, because if the shares were trading for less; the issue will undersubscribe, & FFH will be required to buy.

 

You can actually subscribe for 119%+ of your allocation (using up your proportional portion of FFH's ownership position [p19]).

 

SD 

[Uccmal]

As far as dilution is concerned, if they use the proceeds of the rights offering to retire debt already owing, is that really dilution? That is, if they sell $40 million in new shares and reduce debt by $40 million, is not the company then worth $40 million more?

 

Clever idea asking the shareholders to chip in and pay out company debt with the reward of decreasing debt and interest expense in the hopes of increasing share value for all.

 

That part is mostly as I see it.  If you subscribe you will have bought an exact proportion of the company in relation to what you already hold and it will have the exact value that you paid for it - no matter the price of the subscription ultimately.  It is right out of the FFH playbook.  They used similar rights offerings with Lindsey Morden years ago, and agreed to buy up the excess if people chose not to subscribe.

 

No matter what the price FBK gets their 40 Million-fees, and the book value of the company increases by 40 Million - fees.  Subscribers end up holding exactly: FBK + 40 Million - fees.  There is no dilution in an individual subscribers holding as per book value.        

 

[lessthaniv]

The 20% discount applies only to FFH, only to whatever they take up under the standby, & they cannot resell anything they take up under the standby (p-4). FFH will be paid 400K for the standby, & had no involvement in the prospectus; it intends to exercise its proportional share of the offering, as do most of the FBK directors.

 

SD

 

Hey SD,

 

Your wrong on this point. Fairfax doesn't get better pricing than the rest of the shareholder base. I confirmed this by talking directly with Patsie Ducharme last week. However, if you are still questioning it have a look at this:  its an excerpt from National Instrument 45-101 of the Canadian Securities Administrators, which is the national rule that governs rights offerings in Canada.

 

7.4       Price of Securities  -The subscription price under an additional subscription privilege or a stand-by commitment shall be the same as the subscription price under the basic subscription privilege.

 

Bottom line - the price under a subscription privilege, an additional subscription privilege or a stand-by commitment (all of which are in the SFK rights offering) MUST BE THE SAME!!  

 

 

[lessthaniv]

Oh yeah, as far as the dynamics of the offering go ...

 

1.    All shareholders first have a right (called the "Basic Subscription Privilege") to acquire additional shares pro rata.

 

2.    All shareholders then have a right to acquire, pro rata, any additional shares not acquired by other shareholders under the Basic Subscription Privilege (this additional right is referred to as the "Additional Subscription Privilege"). Further,  Fairfax has agreed not to exercise its rights for that purpose so all other shareholders effectively have the first shot at providing the additional financing (and, therefore, increasing their stake) before Fairfax provides any additional financing.

 

3.    Then, and only then, Fairfax agrees to buy up whatever is left to get a total offering size of $40 million.  This is referred to as the "Standby Commitment" and Fairfax receives a cash payment as its fee for making this commitment up front, thereby ensuring Fibrek will successfully raise $40 million (subject to some standard termination rights).

 

[tyska]

Whatever the case the volume has sure dropped off after the change to FBK. Seems to be staying down most days then popping back up to that 1.40 range at the end of the day.

 

Dan

[alertmeipp]

Anyone what's stopping them from filing the final prospectus?

I think they should get it done quick to get the interest saving benefits and remove the uncertainty.

[SharperDingaan]

LessthanIV: We’re saying the same thing, but we’ll agree to disagree on interpretation.

 

Per NI 45-101. Rights are being offered to both FFH & the public at the same price. Oversubscription is being offered to both FFH & the public at the same price.

 

If there is under-subscription the UW is required to dump the under-subscription into the market, from which FFH &/or the public can buy whatever they want. Under the standby FFH has agreed to buy the under-subscription out of the market at a fixed price.  The simplest transaction is a direct purchase from the UW, versus a matched block trade crossing the trading floor for the entire under-subscription at the agreed price. The market price right after the trade will be the agreed standby price. NI 45-101 is fully complied with.

 

SD

 

[Cardboard]

Alertmeipp,

 

Here is what they are waiting for to file the Final Prospectus:

 

"2.3 Timing of Rights Offering.

Subject to and in accordance with the terms hereof, the Corporation agrees that it will file with the Canadian Securities Commissions: (i) the Preliminary Prospectus, together with the other requisite filings and documentation, no later than 2 Business Days following closing of the Conversion, which date shall not be later than June 30, 2010 (the "Outside Filing Date"); and (ii) the Final Prospectus, together with the other requisite filings and documentation, on or before the day which is two Business Days following the date on which all necessary approvals and consents are received from the Canadian Securities Commissions and the TSX that are necessary or advisable, in the Corporation's opinion, acting reasonably, to proceed with the filing of the Final Prospectus and completion of the Rights Offering. The Corporation will use commercially reasonable efforts to obtain a receipt (or analogous decision document) as soon as possible following the filing of each of the Preliminary Prospectus and Final Prospectus with the Canadian Securities Commissions."

 

Based on previous cases of rights offerings in Canada, it takes roughly 10 calendar days to obtain these approvals and consents. So my best guess is that the final prospectus will be filed on June 8 or next week. This means that the subscription price should be roughly 80% of the average trading price this week.

 

Cardboard

[Uccmal]

They better hurry this thing up while it still has any value at all!

[Cardboard]

One thing that starts to worry me is the stabilization around the $980 U.S./ton for NBSK over the past 3 weeks and more importantly the small decline in Chinese prices for BHK for the week of June 1. It will be important to see if the latest price increase will stick.

 

These are still excellent prices and Fibrek should make a lot of money in Q2. I am just nervous that we may have seen the peak and that we may now move somewhat lower in pricing. What will it be going forward in Q3, Q4 and beyond?

 

http://www.paperage.com/foex/pulp_china.html

 

http://www.paperage.com/2010news/06_02_2010market_pulp_db.html

 

Cardboard

[OracleofCarolina]

Anyone have an idea on the status of SKFUF.PK shares? They stopped trading, will holders of these shares receive some sort of new share?

[Myth465]

Ya its been almost a week with no action.

[alertmeipp]

a bit more insider buying. FFH is backstopping.. I am not too worry.

At this price, it is 2 x cash flow.

 

too bad for those who are forced to sell because of the right offering. Can't blame them.. not everyone want to fork up 50% more to a small-cap.

 

will they actually buy some sawmills with the money?

[Uccmal]

Alertmiepp, I am not sure where your getting the idea that folks are selling this stock.  The volume is rock bottom.  When a stock trades barely more than I hold for days on end I get worried that I wont be able to get rid of it if I need to.  

 

 

[alertmeipp]

try to put a bid up in 1.3 and u will see. It won't stay there long, someone is selling there for some reasons.

 

If they can save 200 basis pts on the new debt, that's close to 4 millions, no reason to sell here until you have to sell to get ready for the rights. Notice that their rate is higher than normal due to the breach of covenants last year.

 

So, this deal is needed to bring the cost down.

[Cardboard]

"it is anticipated that the reorganized structure of the Fund as a corporation will attract new investors, including non-resident investors, and provide in the aggregate, a more active, attractive and liquid market for the Common Shares than currently exists for the Units;"

 

So far, it is not working too well and I have yet to see these foreign investors.

 

Regarding insiders trading, you may want to watch the CFO or Patsie Ducharme's next move following a sale of 7,000 convertible debentures at $95. That is $665,000 and a big chunk of change for someone who earns $190,000 a year and previously $140,000.

 

Unless she needs the money for personal reasons or to buy the stock (would be a big vote of confidence), it would seem bizarre to sell now considering the possibility of redemption in just 7 months that we have discussed.

 

Cardboard

[alertmeipp]

why would any big buyer want to buy now with the uncertainty and complication around the right offerings.

 

I would sell convert if I still have those. :) Can't blame her.

 

Maybe she need to get the cash to subscribe the shares like us.

 

I agree next move will be interesting.

 

I bot some now-under water shares today.

[SharperDingaan]

 

You might want to look at the trading volume over the last few days.

- If I wanted to buy (in quantity) who would I get the shares from?, & how?

- If I really didn't think it a worthwhile investment, why is no one selling?

 

Patience is a virtue

 

SD

[alertmeipp]

hopefully, things will improve after they file the final prospectus early next week.

 

All in all, after the rights is done, we will be looking at a slightly de-leveraged co. capable of generating 80+ millions of EBITDA with ~160million market cap.

 

I assumed 40millions new shares with subscription price of around 1.06.

 

Of coz, we are dealing with uncertainties like pulp price, woodchip price, currency exchange rates and overall economy.But at 2x EBITDA, it seems pretty good investment.

 

Thoughts?

[GrayFan]

FYI, there's quite a price jump this week in the NBSK. We've gone past the $1000/mt... it's currently $1009.19/mt!

http://www.paperage.com/foex/pulp.html

 

Cheers,

Gray

[tgmk54]

Anyone have an idea on the status of SKFUF.PK shares? They stopped trading, will holders of these shares receive some sort of new share?

 

 

 

Hi Oracle -- I use Scottrade here in the US.  My Scottrade broker called his trading desk this morning and was told that the old SFKUF pink sheet listing has been delisted.  He said that this could happen for two reasons: that the exchange that traded it elected to delist it; or, due to SEC mandate.  Scottrade will sometimes drop the ability to trade a pink sheet listing over the internet, and require it to be a broker-assisted trade, if they feel that their customers will get a better price going directly to the primary exchange (Toronto in this case).  But I was told that Scottrade did not take this action.  The stock was delisted.

 

Accordingly, it now costs four times as much per trade ($28 vs. $7).  Since the stock is somewhat thinnly traded, especially on the pink sheets, if took many trades to acquire a position.

 

Before talking to Scottrade, I had talked to CFO Patsie Ducharme yesterday.  She was quite assessible, interested and concerned but was not aware of any issue regarding the pink sheet listing.  I left her a message this morning with the above new information.

 

Would be interested to here from others who may know more.

 

 

 

[Myth465]

I am having a hard time getting details regarding the pink sheet shares. I figured it would just flip over similar to how FFH did. TOS recommended calling the investor relations for SFK Pulp, but somehow I dont think thats going to add much value.  Thanks for the update, hopefully this gets sorted out over the next few weeks.