Thursday, October 22, 2009

ACAS' Imperial Sale: $66m cash, 34% Premium

Despite earlier reports failing to contain details of ACAS' sale of Imperial, ACAS' subsequent announcement offers some interesting and bullish facts. First, the Imperial sale is an all-cash deal that provides ACAS with $66m in immediate liquidity. This is good news.

But the better news?

The $66m sale is $16m ahead of the portfolio company's prior-quarter FAS-157-compliant "fair value" – meaning that actual liquidation showed a 34% premium to SEC-reported valuation.

Better-than-FAS-157 exits aren't universal, but are definitely not uncommon. ACAS doesn't always give us all the information we want on transactions, and doesn't always sell at a substantial premium to FAS-157-compliant values, but selling a third above "fair value" seems common enough even in these hard times to cast doubt on the value to shareholders of FAS-157 in guaging the value of assets. Since substantial variation in value seems to exist primarily to the updide, and much of ACAS' investment portfolio consists of investments valued at nil (even if some of the debt is still paying), it stands to reason that things are less bad for ACAS than FAS 157 would have us believe.


IandW said...

Thanks for the continued coverage of ACAS. I subscribe to your RSS feed to catch up on ACAS once in a while. I've been averaging down on ACAS and CSE, but to my dismay, both have not participated in the run-up.

Do you have any thoughts on AGNC - is the dividend yield sustainable? I'm thinking it is for some time due to government debt. Thinking about adding in a tax-sheltered account (Roth IRA).

Ronald said...

Do you have any 3rd qt eps estimations?

Jaded Consumer said...

I don't have estimates. I believe the last-quarter's NOI was artificially depressed by the backing-out of previously-recognized PIK income (presumably, the paid-in-kind notes became FAS-157 worthless; whether they are in fact worthless isn't something I know enough to speak on, but I'm eager to hear from folks who may have looked at the issue). However, this doesn't mean NOI will increase: unemployment has continued to fall (though at a slower rate than some predicted), so the bad economy is still horrible even if the bottom is near. Because the economy is still bad, erosion of portfolio companies' business (and reserves) is likely. Things can continue to worsen even if management is doing things right.

This is a principal reason ACAS' ability to raise funds from portfolio company exits is essential: ACAS needs to be able to survive long enough for improvements in the economy to find ACAS still in existence. Since ACAS can make effective exits, I believe ACAS will continue to survive even in the event of continuing deterioration in portfolio companies' earnings (and thus ACAS' NOI).

As for the AGNC dividend, I tried thinking about it in this comment but it ran a bit long.