Tuesday, March 10, 2009

Malon Wilkus' Big Margin Call

Although ACAS itself is not subject to "margin calls" because its most concerning debts (those with a breached net asset covenant) are unsecured, ACAS' various shareholders are not so lucky. Joining those of us with ugly ACAS-related margin calls is ACAS' own founder and CEO Malon Wilkus.

Under a pre-Sarbanes-Oxley loan agreement, Wilkus had borrowed from the company funds secured by ACAS shares. Wilkus stated that he was proud never to have sold a single share of ACAS. As ACAS' price declined, he added to the 208,200 shares securing his loans an additional, then-unencumbered 852,456 shares, to prevent foreclosure. As a result, Wilkus has lost 1,060,656 shares as a result of sticking with the company -- and keeping faith with other shareholders -- as its share price has been hammered by the marketplace.

The fact that ACAS' CEO stuck with the shares as their price plummeted, and multiplied the number of shares at risk of foreclosure in order to protect any shares from risk of loss, illustrates his personal confidence in ACAS. Unfortunately, the market did not share his confidence, hence the stock price decline to less than 1/15 its annonced NAV. Malon Wilkus continues to own 630,000 shares through participation in an ACAS incentive bonus plan, some of which shares have not yet vested.

The reduction in outstanding shares should be reflected in the next quarterly report. Hopefully we will by then also have a report on share issuance associated with the ECAS transaction, and get some indication regarding the associated change in NAV.


Imperator said...

Losing a million shares is a big hit. So those shares are taken off the outstanding shares? The outstanding was around 200 million, so pretty big chunk.

BTW, the CUSIP on the ACAS bond
From what I could find out, it was trading at 31.

Jaded Consumer said...

I applaud your locating information on the ACAS bonds. Googling that CUSIP, it seems that Assurity Life Insurance Company's approximately $1B holdings in publicly-traded fixed-income holdings include $3,000,000 par value of those ACAS bonds, which have a coupon of 6.85% through August 1, 2012. If it's true that they trade at 31¢ on the dollar, their yield if bought now would be just over 22%. Assuming ACAS' debt coverage remains good (at last quarterly results, ACAS published covering its interest expense several times), this would be good income while waiting for a triple in just over three years.

Unfortunately, TD Ameritrade doesn't know anything about the CUSIP. Is there actually any active trading in this CUSIP? My impression is that while ACAS' debt might be registered as public securities, it might not actually be traded on a major exchange. I've had the interesting experience to own securities of this nature -- registered for public trading, but not listed on an exchange and therefore illiquid -- and I'm wondering if this ACAS debt is like that.

Any ideas how one would place a buy order? I'd be interested in placing a modest investment in this debt in the expectation of (a) a turnaround, (b) ongoing interest coverage in the interim, and (c) improved markets three-plus-years hence, when the principal is due (interest coverage at less than 7% doesn't imply either ability to pay face value or the ability to refinance under new credit conditions, so it's not exactly a no-brainer).

Thanks for your homework on this!

Imperator said...

I couldn't find any information from TD Ameritrade either, but Fidelity had a few trades listed for the cusip.

As far as I know, you may be able to buy it by through TD Ameritrade. You would have to probably call and have a broker assist with the trade, so the commission would be a bit more. The number for the special products representative is 800-934-4445.
Some bonds have weird limits on the amounts that can trade, I'm not sure what the entry price would be.

Also, the price has been moving up, it's up to 38 now.

Jaded Consumer said...

ACAS Bond follow-up: my broker claims that, when looking at the inventory of about ten different bond dealers with whom it does business, it found zero of the bonds on offer.

The issue is too thinly-traded to get regular quotes, apparently. Also, since it's grade is below investment-grade, my broker doesn't allow it to be quoted or described on its web site.

There's the story. At the next big bad news event, I'll try leaving a GTC order and see if I get traction ;)

Anonymous said...

ALERT - it is well past time for analysis.....It is well past time to PANIC... shoot this lame nag...SELL SELL SELL

Jaded Consumer said...

Ordinarily I would shy from moderating into publication an anonymous and unreasoned call for panic, such as that just above, but I could hardly not post it when offered at the exact same time as this comment by Drake Equation claiming that recent buy activity and proposed rule changes are a huge bullish ACAS sign.

Vive la differénce, eh?