woodstove Posted June 29, 2009 Share Posted June 29, 2009 News this morning re SFK credit covenants. My guess is they were hoping to have negotiations for covenant changes completed before June 30th, hence delay, but were unable to finalize that fast, and have put out current-status news release to provide disclosure. I've still got some exposure to SFK via debentures, failed to sell all of them last time as I intended - forgot some in another account. So it is a hold, for me. Not particularly keen about the outlook; there is so much debt overhang vs debentures + units, that some dilution seems inevitable - or perhaps a high interest rate that effectively dilutes future earnings potential. But it is an opportunity for Fairfax, should they wish to provide additional financing. The way to play SFK's long term potential, I believe, is by owning FFH shares. Short term maybe nimble traders can pick up some profits, but I prefer companies which have little debt, or are on a clear path to retiring (or stabilizing terms of) their callable debt. We are in a balance sheet recession. Link to comment Share on other sites More sharing options...
woodstove Posted June 29, 2009 Share Posted June 29, 2009 SFK filed a couple of conduct documents on Sedar, July 26th - updated - re code of conduct, and re insider trading. They are models of how to do things ethically. Very impressive. Whatever the business situation, there is much to admire. Link to comment Share on other sites More sharing options...
benhacker Posted June 29, 2009 Share Posted June 29, 2009 http://finance.yahoo.com/news/SFK-Pulp-obtains-temporary-cnw-2263943578.html?x=0&.v=1 SFK Pulp announces that following this morning's announcement of an interest coverage ratio breach, it has since obtained from its lenders a two-week temporary waiver while negotiating a permanent amendment to its credit agreement. SFK Pulp is reasonably confident to reach a satisfactory agreement with its lenders within this time frame Interesting day. Too bad I bought at $0.30 instead of today at $0.20... doh... Ben Link to comment Share on other sites More sharing options...
nodnub Posted June 29, 2009 Share Posted June 29, 2009 Interesting day. Too bad I bought at $0.30 instead of today at $0.20... doh... Ben I suspect there are many on this board that would be pretty happy if their average cost on SFK was 30cents. I am one of them...;) Link to comment Share on other sites More sharing options...
oldye Posted June 30, 2009 Share Posted June 30, 2009 I was buying units north of 4 :) so was fairfax. Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 30, 2009 Share Posted June 30, 2009 Cheer up, We could all be getting a zillion units (7% dilution) tomorrow at $.22, if the debs pay their interest in PIK ! SD Link to comment Share on other sites More sharing options...
triedtestedand Posted July 7, 2009 Share Posted July 7, 2009 Encouraging (micro)pop in NBSK pricing ... we'll see how it lasts/trends ... http://www.paperage.com/foex/pulp.html Link to comment Share on other sites More sharing options...
Cardboard Posted July 7, 2009 Share Posted July 7, 2009 SFK is still in a very tough spot and a lot of it is outside its control. The "black liquor tax" offset is not effective yet in Canada, while the U.S. program is probably hurting them somewhat at their recycled pulp mills since they are not eligible. We are talking about a credit of $150-200 a ton on a product that currently sells for $672. That is absolutely enormous and I would say a clear violation of WTO agreements. http://www.paperage.com/2009news/07_02_2009wood_chip_price.html I don't know what it is in the States with this never ending support for their paper and timber industry. It is definitely not crucial to national interest to defend and retain this industry, consumers pay more and quality is inferior. No wonder that they are now talking about another "stimulus" program. If they were using the money properly, the country would be running full employment. All they are doing is keeping alive zombies such as Citigroup, GM, AIG and now high cost pulp producers. Cardboard Link to comment Share on other sites More sharing options...
oldye Posted July 7, 2009 Share Posted July 7, 2009 Good points Cardboard, I'm assuming they're getting 1/28th of 1 billion but its totally dependent on how much liquor they produce, could be double that amount or 70 million. The money has to be invested in environmental efficiency projects which at best will generate a few million dollars in savings every year. The good news at least is that the black liquor subsidy hasn't kept them from increasing prices as previously announced. Link to comment Share on other sites More sharing options...
triedtestedand Posted July 8, 2009 Share Posted July 8, 2009 Am anxious to see what sort of revised agreement SFK makes with creditors ... presume some news in the next week? With US federal government targeting to eliminate black liquor subsidy by either September 30 or December 30, I wonder just how much stress SFK's balance sheet can handle during such period ... I also wonder about timing of overall Canadian government response -> the program (which is light on details) requires parliamentary approval, which won't happen until the fall, so wonder if the announcement was intentional to simply make some noise in the press in the near term, while buying time to see if/how the US subsidy unwinds. Link to comment Share on other sites More sharing options...
SharperDingaan Posted August 1, 2009 Share Posted August 1, 2009 This is why you hedge. A net loss of 37c for the quarter - ouch! http://cxa.marketwatch.com/TSX/en/Market/article.aspx?guid=http%3a%2f%2fsystem.marketwatch.com%2fnewscloud%2fdocguid%2f%7bF4F5CCAC-AB36-4634-A55A-6408CD51C890%7d&symb=SFK.U SD Link to comment Share on other sites More sharing options...
triedtestedand Posted August 2, 2009 Share Posted August 2, 2009 Sharper: Agreed ... ouch is the right term. But must admit they are managing the balance sheet quite well (via www.sedar.com), as on quarter-over-quarter basis: - cash is up by 9M (to 26M) - accounts receivable are down by 2M (to 37M) - inventories are down by 34M (to 88M) - accounts payable are down by 9M (to 33M) - long-term debt down by 4.5M (to 165.5M) Link to comment Share on other sites More sharing options...
woodstove Posted August 2, 2009 Share Posted August 2, 2009 The significant reduction of inventories should have resulted in positive cash flow to correspondingly reduce debt. That debt did not go down very much is a further indication that in Q2 SFK was selling below marginal cost of production - as is already apparent from EBITDA numbers. I find it hard to accept management's statement that the value of long term assets on the balance sheet - the three mills - has not been impaired. Those prices were established as transfer prices in a much more upbeat economic climate for pulp mills. Still, understanding that a writedown might affect credit ratios, and also might lose some future tax benefits, it is reasonable to keep carrying the assets at those values - if/while the auditors permit. I would think there might be a surprise next annual report however, if the auditors insist upon checking the cash flow projections the company is using to justify not taking fixed asset writedowns. These are very tough circumstances for SFK. I'm sure there is regret now that the size of the equity and debentures issuance a while back was not doubled, to reduce debt load - that was greed at the time, we all liked the leverage implicit in that - and now we suffer the result. Looking forward, my belief is that SFK must issue more equity or possibly income participating debentures, replacing fixed costs and future constraints of callable bank debt, with financing which is willing to assume the risks and opportunities of being in a volatile commodity business, and has a longer term outlook. At 165m debt + 20m debs + 20m units, the company is valued at about $205m, and it is likely worth that as a business. But it would be best served, as a business, by finding non-bank ownership rather than suffering from unusual conditions, high interest rate raises from credit agreement renegoiations, and most importantly, the steady drawdown of working capital via interest charges on debt. Operationally, a decently run company, in an ok line of business with volatility due to economics, government subsidies, etc etc. Great for those who can live with volatility and uncertainty. Link to comment Share on other sites More sharing options...
SharperDingaan Posted August 2, 2009 Share Posted August 2, 2009 We'll post our take in a a week or so ;) SD Link to comment Share on other sites More sharing options...
SharperDingaan Posted August 8, 2009 Share Posted August 8, 2009 Sometimes you get what you need, Rolling Stones. Few have realized what management have really told us. 1) Q2 was all about cash conversion. Inventory sold at a loss, working capital management, confirmed black liquor subsidy recipient, debenture interest negotiation. The true value of the subsidy is that it's a back door by which Quebec can inject material $ into the industry, the interest & repayment free $ start flowing in the last 1/2 of the year, & there is no real cap - essentially a mini TARP fund. The real value of interest capitalization is no cash interest payments on the non-debenture debt for 12 months. 2) Banks are not charities - yet they've agreed to increase debt, take no interest for a year, & allowed deb holders a cash interest payment? Or is it more likely that it wasn't just SFK in the room, & that the banks have been persuaded that they can be confident of the minimum projected cash flow for the next 12 months? 3) $US NBSK prices have risen every week for at least the last 10 weeks & are now at least 10% higher than they were. Q3 is a traditionally higher volume quarter (xmas wrapping paper) & the price is rising; we're also starting to see brown paper grocery bags replacing plastic (incremental secular volume). St Feliceons inventory is low, & Kruger has just cut production; so why wouldn't the growing margins flow to the bottom line fairly rapidly? At $40 the Debs are priced at a 17.5% cash yield, a 50%+ YTM, & the cash yield reflects the negative possibility of repayment in common vs cash. Discount at the cash yield & you get a 3 bagger - with the principal repaid in either cash or common (assumes no bankruptcy). To hold common most folks would want at least 2.5x as much to compensate for their higher risk, hence the common needs to be at least a 7.5 (3x 2.5) bagger by 12/31/2011. ie: At todays price - it needs to be at least $1.65 within 2.5 years. Then consider: If the biggest creditors are confident in the cash flow, & business conditions are improving, why does the Deb need a 17.5% cash yield? And wouldn't the possibility of getting repaid in common now be a positive if you could get 2.5x as much common (100/40), & SFK had a very strong reason to pay in common vs cash (Debt/Equity ratios) Disclosure. We are no longer short common SD Link to comment Share on other sites More sharing options...
oldye Posted August 8, 2009 Share Posted August 8, 2009 We'll get the details sometime during Q3 but to me they made it sound as if the subsidy might take care of cap ex for the next 3 years. Link to comment Share on other sites More sharing options...
oldye Posted August 11, 2009 Share Posted August 11, 2009 Pulp prices up 24$/ton last week, it certainly looks like things are starting to get better. Cheers! Link to comment Share on other sites More sharing options...
alertmeipp Posted August 14, 2009 Author Share Posted August 14, 2009 The common has doubled in the last few days. Missed the run. But for those holding it. Congratulation. Link to comment Share on other sites More sharing options...
benhacker Posted August 14, 2009 Share Posted August 14, 2009 Sharper, nice timing (and analysis)! :) My shares bought at $0.30 feel somehow smarter with the common above $0.40 than they did with it at $0.20. Talk about leverage... Ben Link to comment Share on other sites More sharing options...
SharperDingaan Posted August 14, 2009 Share Posted August 14, 2009 Thanks. While we've used the opportunity to triple our share holding for very little additional investment, we think the shares are a little ahead of themselves at present :( We still hold the debs, but their true value is in their +ve carry (long deb, short T-Bill) May we all prosper SD Link to comment Share on other sites More sharing options...
triedtestedand Posted August 21, 2009 Share Posted August 21, 2009 A bit more management buying in the past few days ... http://www.canadianinsider.com/coReport/allTransactions.php?ticker=sfk.un Link to comment Share on other sites More sharing options...
alertmeipp Posted August 28, 2009 Author Share Posted August 28, 2009 Any opinion on CXF pulp... it looks safe with probably half of the upside? Link to comment Share on other sites More sharing options...
T-bone1 Posted August 28, 2009 Share Posted August 28, 2009 latest North American NBSK prices for Sept 1: (price increase, then price, then effective date) Northern bleached softwood kraft (NBSK) Weyerhaeuser $40 $770 1-Sep Alberta-Pacific 40 770 1-Sep Domtar 40 770 1-Sep Canfor Pulp 40 770 1-Sep Tembec 50 780 1-Sep Mercer International 50 780 1-Sep Link to comment Share on other sites More sharing options...
Guest Dazel Posted September 9, 2009 Share Posted September 9, 2009 SD, You have a good handle on this company. Pulp prices are up drastically...what is your thought on sfk operations? input costs should be down across the board...Us dollar has not been great but pulp prices should offset. Any thoughts on quarter 3 and 4... we own a small amount. dazel. Link to comment Share on other sites More sharing options...
SharperDingaan Posted September 9, 2009 Share Posted September 9, 2009 For the next 2-3 months we can probably expect all kinds of pleasant surprizes. Purely speculation, At some point there will be the black liquor subsidy announcement. Assuming their share is roughly 3x the St Felicien maintainance capex -about a 15c/share increase. Its highly likely that they are again profitable. We think they are actually a lot more profitable than most people realize as both the sales price & throughput volume have (probably) gone the right way - & significantly. When we see the numbers, it should be quite obvious. Maybe a 30-50c/share increase. Its highly likely that they are building a mountain of cash, from both operations & the interest payment relief. For now they're probably building the stash, but during Q4 we half expect to hear of open market debenture purchases - especially if the subsidy has also been announced. Another 20-30c/share Somewhere around $1.10 to $1.40/share by mid Feb next year. SD Link to comment Share on other sites More sharing options...
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