The Question
After the MION IPO didn't go through last week at 16, and had apparently been attempted at 14, and had the plug pulled on it at 11, I was emailed a question recently about whether ACAS had valued its Mirion holdings at 16 or 17.
Why Ask?
If ACAS had valued its Mirion equity at 16 or 17, the market's reception to the IPO would be a rejection of ACAS' supposed "fair value" and a bad signal for ACAS' NAV. So, the question was eminently worth addressing. Did ACAS have a bad value on the books?
The Answer
The answer, as it turns out, is "neither".
In the 10-Q filed most recently before the non-IPO, ACAS declared its entire holdings in Mirion Technologies, Inc. to have a FAS-157-compliant "fair value" of $322.9m. ACAS' investment in MION is, however, dominated by debt: ACAS holds MION senior and junior debt valued at $181.8m, leaving the value of ACAS' entire equity interest (including not only common shares but convertible preferred and warrants) at $141.1m. Although the convesion features aren't discernible from where the Jaded Consumer stands, the MION filings make clear that when all its interest has been expressed, ACAS' holdings will total some 14,020,037 shares (ignoring those it will sell in the IPO). This leaves a per-share value that rounds to $10.06.
What The Answer Means
While one can make arguments about the value of a control premium or an illiquidity discount in figuring the "fair value" of holdings, I would submit that controlled but illiquid interests creates a circumstance in which there effects might tend to cancel. If it is true that ACAS could have consummated the deal at $11 and chose not to, it means that ACAS decided to forego the advantage of eliminating the illiquidity discount to the fair value of its post-IPO MION equity in order to obtain something closer to what ACAS considered the company's fair value, and thereby delay the possibility of increasing the FAS-157-compliant reported value of MION from "base plus control premium minus illiquidity discount" to "base plus control premium". If ACAS really could have agreed to be picked off at $11, ACAS' decision not to do so (and therefore, a decision not to be paid a couple hundred million in cash) strongly suggests that ACAS had more important things on its mind than raising cash or propping up NAV.
Especially since Mirion Technology is among ACAS' top few holdings, ACAS' stewardship of the investment is worth watching. Had ACAS been truly desperate for cash, ACAS could have taken the deal at $11, knowing that it would still be repaid its debt in full and would enjoy subsequent appreciation on its retained >40% interest. ACAS' conviction that MION is worth more than $11, coupled with its patience in accepting an exit offer, shows that management is willing to go through some noticeable trouble to get the most out of its investors' capital. ACAS will presumably continue to shop MION to institutions interested in energy plays, alternative energy plays, and safety equipment and services – in the expectation of peddling the equity again when multiples are better.
The Future of ACAS and MION
With this in mind, what is ACAS' position for the future? There is a short answer: Much as its position has been in the past.
ACAS is being paid interest on its debt and dividends on its convertible preferred, and it is working to produce an exit that allows ACAS' investors to enjoy ongoing returns. Unlike the Riddell investment, in which ACAS ended up with a few percent interest in a privately held company that might not pay dividends, Mirion offers a control block in a publicly-traded company with at least one easy exit alternative open on any given trading day. (Of course, realizing the control premium requires more work.) Mirion would presumably be of a like position as AGNC: an ACAS-controlled investment in an enterprise with potentially broad third-party participation, serving as an ongoing advertisement for ACAS' operations expertise and private equity services. Although ACAS won't get a management fee from Mirion, it will be in a position to enjoy subsequent capital appreciation and dividends – which have proven much more valuable at AGNC than the management fee. Moving MION into a position from which ACAS is less interested in developing exit strategies is an attractive move, not the lease because the new (lower) headcount at ACAS surely can't support as much simultaneous strategic activity as before, and ACAS still has a lot of our money to multiply.
The Immediate Furure of ACAS
While news on the MION IPO is welcome, the next big news will likely be in connection with the debt restructuring project. If the lenders don't all get onboard with the plan, ACAS' move will be to a court with the jurisdiction to force them into agreement. Unfortunately for short-term ACAS holders, the name of the court having this jurisdiction is the United States Bankruptcy Court, and parties havign business before that court get rough treatment in the press. Some investors' charters prohibit investment in companies before the court, which would cause a certain amount of exodus completely aside from the stink and noise of the proceedings. The immediate results would be favorable to ACAS' business operations, however: as a Chapter 11 debtor, it is entitled to operate its business so long as it continues to make timely payment of non-default-rate interest. This means that ACAS could possibly improve its margins overnight with a $1039 bankruptcy filing fee. All that money ACAS lends to portfolio companies is financed, and improving the spread on the paying debt would dramatically improve ACAS' NOI. I don't know how long it would take ACAS to get the Court to order the debt restructured in accordance with the plan to which I understand most of the lenders have already agreed, but during that whole time ACAS will be sucking in more cash than it has in years.
The downside of debt restructuring under these circumstances is that ACAS gets the "black eye" of bankruptcy court and the scorn of financial counterparties who see that ACAS wasn't able to "take care of business" by contracting and performing, but was required to get a court to bully its counterparties into line. While the long term would not likely suffer, it's a reputational hit that will take a little while to get over. I can't estimate whether this is or is not material to ACAS' business. On the other hand, the "getting out of bankruptcy" pop some companies get when everyone thinks the restructuring has given a firm a new lease on life could be just the thing ACAS needs to get attention drawn to it for the right reasons.
For preference, and to avoid surprise, the better alternative is of course to see ACAS reach agreement with its creditors. Unfortunately, without knowing what the hold-up is in the deal (unreasonable lender terms? 11th-hour effort to renegotiate in ACAS' favor?), we can't know whether to hope compromize is reached or to hope the court quickly orders the reatructuring as planned.
Any thoughs welcome :-)
Monday, May 31, 2010
Wednesday, May 26, 2010
ACAS: On The Eve of an IPO
ACAS rose above $5 this morning, possibly on sentiment related to the soon-to-close Mirion IPO. If the deal closes this week, ACAS will be repaid all its MION-related debt and will exit millions of shares, and will end up with what is probably a control block (not a majority stake, but enough to direct the business) of a publicly-traded company with fortunes that will likely only improve with the rise in demand for both energy and non-petroleum energy.
Of course, the last couple of weeks' lousy market has impacted the valuation of companies, including Mirion at IPO, so the $16 discussed in MION's last filing is sure not to occur as hoped. However, the ~8m sh ACAS is selling isn't the only place it gets benefit from the IPO. ACAS gets its debt repaid, and it gets to change the value of the ~10m shares ACAS will keep on its books. ACAS turns illiquid holdings into cash, plus liquid shares that no longer suffer an illiquidity discount. Under FAS 157, ACAS may even be able to apply a control premium. ACAS gets cash and it gets to engineer its FAS 157 valuation of its remaining MION shares toward the good side. On my math, at the plausible IPO price range, ACAS should get at least $150m and the ability to re-price its remaining equity consistently with FAS 157. The NAV impact of the issuance is thus highly advantageous to ACAS at any plausible IPO price, which I'm currently guessing (Warning: WAG) to be north of 10 despite the current market.
The next question is what ACAS will do with all that cash.
If ACAS' lenders don't sign on to the proposed refinancing arrangement, ACAS will eventually have enough to just pay them off. I don't see that happening, though. ACAS' management said earlier that they thought ACAS' refinancing deal would turn out to have good long-term financing terms, and I don't see ACAS wanting to start over from scratch with new lenders. Maybe if ACAS found lenders who wanted to lend to ACAS and refinanced to pay off all the departing lenders and much of the remaining lenders, ACAS could more forward with a credit line reduced by the size of the portion underwritten by the departing lenders. Honestly, one could go blind working out what might and might not be possible – the real questions are what management wants to do, and what the hold-up is with the current lenders. Is ACAS trying to renegotiate the deal on the basis of its improved prospects, or is the hold-up really with the lenders?
As attractive as bankruptcy is for solvent debtors, it would frighten some owners out and force some instutitions out (who can't hold "bankrupt" equities), and tarnish management's reputation for being able to perform its contracts – having its banks forced by court order to take a deal they didn't agree to take isn't the way we want our company to be seen to operate, is it? ACAS has a strong incentive to avoid bankruptcy, but also a strong incentive to refinance its 10%+ debt back into the single digits. The liquidity and FAS-157 impact of the IPO will help improve ACAS' flexibility and negotiating position, and leave us with optimism for the future but continuing puzzlement about the delays in the debt refinancing we'd expected to be done late last year.
I'll look forward to evidence of the MION IPO pricing and ACAS' take from the deal, and I'll look forward to evidence of ACAS' plan for its refinancing debt. Of course, with the banks currently enjoying default interest rates, banks may be dragging their heels on purpose without any intent to shut down dealings with ACAS at all ....
Of course, the last couple of weeks' lousy market has impacted the valuation of companies, including Mirion at IPO, so the $16 discussed in MION's last filing is sure not to occur as hoped. However, the ~8m sh ACAS is selling isn't the only place it gets benefit from the IPO. ACAS gets its debt repaid, and it gets to change the value of the ~10m shares ACAS will keep on its books. ACAS turns illiquid holdings into cash, plus liquid shares that no longer suffer an illiquidity discount. Under FAS 157, ACAS may even be able to apply a control premium. ACAS gets cash and it gets to engineer its FAS 157 valuation of its remaining MION shares toward the good side. On my math, at the plausible IPO price range, ACAS should get at least $150m and the ability to re-price its remaining equity consistently with FAS 157. The NAV impact of the issuance is thus highly advantageous to ACAS at any plausible IPO price, which I'm currently guessing (Warning: WAG) to be north of 10 despite the current market.
The next question is what ACAS will do with all that cash.
If ACAS' lenders don't sign on to the proposed refinancing arrangement, ACAS will eventually have enough to just pay them off. I don't see that happening, though. ACAS' management said earlier that they thought ACAS' refinancing deal would turn out to have good long-term financing terms, and I don't see ACAS wanting to start over from scratch with new lenders. Maybe if ACAS found lenders who wanted to lend to ACAS and refinanced to pay off all the departing lenders and much of the remaining lenders, ACAS could more forward with a credit line reduced by the size of the portion underwritten by the departing lenders. Honestly, one could go blind working out what might and might not be possible – the real questions are what management wants to do, and what the hold-up is with the current lenders. Is ACAS trying to renegotiate the deal on the basis of its improved prospects, or is the hold-up really with the lenders?
As attractive as bankruptcy is for solvent debtors, it would frighten some owners out and force some instutitions out (who can't hold "bankrupt" equities), and tarnish management's reputation for being able to perform its contracts – having its banks forced by court order to take a deal they didn't agree to take isn't the way we want our company to be seen to operate, is it? ACAS has a strong incentive to avoid bankruptcy, but also a strong incentive to refinance its 10%+ debt back into the single digits. The liquidity and FAS-157 impact of the IPO will help improve ACAS' flexibility and negotiating position, and leave us with optimism for the future but continuing puzzlement about the delays in the debt refinancing we'd expected to be done late last year.
I'll look forward to evidence of the MION IPO pricing and ACAS' take from the deal, and I'll look forward to evidence of ACAS' plan for its refinancing debt. Of course, with the banks currently enjoying default interest rates, banks may be dragging their heels on purpose without any intent to shut down dealings with ACAS at all ....
Monday, May 24, 2010
Iced Tea Report: Ruggles
Friday night, some parents took their Kindergartners' teacher to a "nice dinner" at Ruggles' original restaurant location near Montrose. The event was held upstairs, the only plausible solution to the layout of the noisy restaurant, and an effective way to police the movement of the children: guard the stairs.
When we arrived, nobody took drink orders even as family after family arrived with children. Nobody took appetizer orders. It was an undirected mess for the better part of forty-five minutes while I walked around wondering who would take responsibility for ensuring that we were served. It took forever to get a waiter to come to our tables, and I knew the kids were at their limit.
The hunger-maddened children was my first order of business with the waiter.
"For the safety of your establishment," I began, "bring this girl --" and here, I pointed at a child who was past all patience but soldiering on like a champ "-- Mac and cheese as fast as it is possible for the kitchen to deliver." I gave this instruction before ordering anything at all. I kept pointing at the girl while I looked from the waiter to the girl and back to make sure he had directed his attention appropriately. I thought my point had been clearly made: this was an emergency.
After an eternity, one parent begged for some bread, or something, to aid the increasingly distressed children. By then some kids were past reason, unwilling to eat anything but what they'd ordered. Like the Mac and cheese ordered by my targeted would-be diner.
The girl held her abdomen as if in pain and said, "I'm hungry."
I found the waiter and urged him to do something about the kids' meals and the Mac and cheese I'd specifically requested be brought faster than anything else. He agreed.
Adults began receiving their appetizers, mine included, and I went in search of the waiter. I asked about the Mac and cheese. He said they were moving as fast as possible and he was doing everything he could.
The adults received their entrées. I tried to work with the little one about whom I was worried, and she was insensible. She was hungry past reason. She wept – literally wept.
I went asking after a manager, and found someone willing to enter the kitchen and ask for the Mac and cheese. Within a minute, Mac and cheese sat before all the kids who'd ordered it. One parent reported that from their arrival to their kids' receipt of food took an hour and forty minutes.
Then, I reached for my tea.
The big steak in the foreground of the photo on the left was well-favored, but I'd ordered it medium and it was delivered mostly well-done and therefore considerable drier in the middle than I am accustomed to eating and lacked the texture I expect in a quality steak. Despite the definitely-quality-steak price of the thing, I was starved and unwilling to wait again for food, and entirely unwilling to take up another customer service issue with the staff. The stress of telling people they've botched things when you are trying to have a sit-down dinner with your family and the kids' teachers is just not my idea of a good evening.
After a couple (2) of tea refills, they stopped sending anyone near enough to notice, or even to have their attention attracted to the state of my tea glass. So look carefully at the picture, paying special attention to the empty glass with the ice, lemon, and tea spoon: if you go to Ruggles, this will happen to you!
Eventually, dinner was completed around 8PM, and the kids needed to go home. Unfortunately, Ruggles doesn't help people get home with any more seal than they help people get food or iced tea. Those families that came in two cars split up: the bill was so slow coming that a paying adult was left to wait while the families took off for home and bed.
It took an hour from finishing dinner to see a bill. A dinner that "started" at 6PM didn't let me back to my car ($4 to valet, and no apparent parking anyplace) until after nine o'clock.
Everyone had pitched in to cover the teachers' bills, so they were together. Everyone else had a one-family bill. Nevertheless, despite the three- and four- and five-person checks, that characterized the room (we went so far as to place name tags on the table so the staff could tell whose bill they were serving), there was a 20% tip added. After an hour waiting, and with kids past sense, I had no possibility of spending time getting justice. The wretched service – one waiter for maybe thirty people who took up the entire upper floor of the restaurant, and not a very attentive waiter at that – wasn't worth 5%, except that I like to make sure the people who actually work get paid. (L's chicken was superb, but you won't want to suffer the rest of the experience to get it.)
By chance, I had a lunch date the next day at the more mainstream-priced Ruggles Café and Bakery in the Village on Rice Boulevard. I ordered a turkey Reuben and iced tea, with fruit substituted for the fried potatoes that are normally served with the sandwich.
The iced tea is self-serve, so you can get all the lemon and sugar and refills you care to pour. There is no tip tacked onto your bill, even when you eat with friends. If you are lucky enough to get a table close to the drink fountain, you can get refills without much hassle.
The picture on the left shows how Ruggles substitutes fruit in favor of fries.
My conclusion is that while there are outstanding elements at Ruggles' associated restaurants, there is no ethic of service at all, and the tea – despite being offered with lemon, a tea spoon, and even sugar in the raw – is a C at the main restaurant for want of service. It is a B+ at the Ruggles Café if you can get a table close enough to the drink fountain to make refills likely. (Otherwise you leave your company repeatedly to get refills, or forgo them, either of which greatly reduces the quality of your experience.)
Between the two, Ruggles Café is the one to visit. It is also vastly cheaper. You can easily get better service nearly anyplace else in town, though. For the price, what you get at Ruggles' main restaurant is awful.
When we arrived, nobody took drink orders even as family after family arrived with children. Nobody took appetizer orders. It was an undirected mess for the better part of forty-five minutes while I walked around wondering who would take responsibility for ensuring that we were served. It took forever to get a waiter to come to our tables, and I knew the kids were at their limit.
The hunger-maddened children was my first order of business with the waiter.
"For the safety of your establishment," I began, "bring this girl --" and here, I pointed at a child who was past all patience but soldiering on like a champ "-- Mac and cheese as fast as it is possible for the kitchen to deliver." I gave this instruction before ordering anything at all. I kept pointing at the girl while I looked from the waiter to the girl and back to make sure he had directed his attention appropriately. I thought my point had been clearly made: this was an emergency.
After an eternity, one parent begged for some bread, or something, to aid the increasingly distressed children. By then some kids were past reason, unwilling to eat anything but what they'd ordered. Like the Mac and cheese ordered by my targeted would-be diner.
The girl held her abdomen as if in pain and said, "I'm hungry."
I found the waiter and urged him to do something about the kids' meals and the Mac and cheese I'd specifically requested be brought faster than anything else. He agreed.
Adults began receiving their appetizers, mine included, and I went in search of the waiter. I asked about the Mac and cheese. He said they were moving as fast as possible and he was doing everything he could.
The adults received their entrées. I tried to work with the little one about whom I was worried, and she was insensible. She was hungry past reason. She wept – literally wept.
I went asking after a manager, and found someone willing to enter the kitchen and ask for the Mac and cheese. Within a minute, Mac and cheese sat before all the kids who'd ordered it. One parent reported that from their arrival to their kids' receipt of food took an hour and forty minutes.
Then, I reached for my tea.The big steak in the foreground of the photo on the left was well-favored, but I'd ordered it medium and it was delivered mostly well-done and therefore considerable drier in the middle than I am accustomed to eating and lacked the texture I expect in a quality steak. Despite the definitely-quality-steak price of the thing, I was starved and unwilling to wait again for food, and entirely unwilling to take up another customer service issue with the staff. The stress of telling people they've botched things when you are trying to have a sit-down dinner with your family and the kids' teachers is just not my idea of a good evening.
After a couple (2) of tea refills, they stopped sending anyone near enough to notice, or even to have their attention attracted to the state of my tea glass. So look carefully at the picture, paying special attention to the empty glass with the ice, lemon, and tea spoon: if you go to Ruggles, this will happen to you!
Eventually, dinner was completed around 8PM, and the kids needed to go home. Unfortunately, Ruggles doesn't help people get home with any more seal than they help people get food or iced tea. Those families that came in two cars split up: the bill was so slow coming that a paying adult was left to wait while the families took off for home and bed.
It took an hour from finishing dinner to see a bill. A dinner that "started" at 6PM didn't let me back to my car ($4 to valet, and no apparent parking anyplace) until after nine o'clock.
Everyone had pitched in to cover the teachers' bills, so they were together. Everyone else had a one-family bill. Nevertheless, despite the three- and four- and five-person checks, that characterized the room (we went so far as to place name tags on the table so the staff could tell whose bill they were serving), there was a 20% tip added. After an hour waiting, and with kids past sense, I had no possibility of spending time getting justice. The wretched service – one waiter for maybe thirty people who took up the entire upper floor of the restaurant, and not a very attentive waiter at that – wasn't worth 5%, except that I like to make sure the people who actually work get paid. (L's chicken was superb, but you won't want to suffer the rest of the experience to get it.)
By chance, I had a lunch date the next day at the more mainstream-priced Ruggles Café and Bakery in the Village on Rice Boulevard. I ordered a turkey Reuben and iced tea, with fruit substituted for the fried potatoes that are normally served with the sandwich.
The iced tea is self-serve, so you can get all the lemon and sugar and refills you care to pour. There is no tip tacked onto your bill, even when you eat with friends. If you are lucky enough to get a table close to the drink fountain, you can get refills without much hassle.
The picture on the left shows how Ruggles substitutes fruit in favor of fries.
My conclusion is that while there are outstanding elements at Ruggles' associated restaurants, there is no ethic of service at all, and the tea – despite being offered with lemon, a tea spoon, and even sugar in the raw – is a C at the main restaurant for want of service. It is a B+ at the Ruggles Café if you can get a table close enough to the drink fountain to make refills likely. (Otherwise you leave your company repeatedly to get refills, or forgo them, either of which greatly reduces the quality of your experience.)
Between the two, Ruggles Café is the one to visit. It is also vastly cheaper. You can easily get better service nearly anyplace else in town, though. For the price, what you get at Ruggles' main restaurant is awful.
Friday, May 21, 2010
CNAM: 1Q2010
The Chinese recycler and metal distributor China Armco (Ticker:CNAM) recently announced its results for the first quarter of the year. CNAM is another case in which ascertaining the enterprise value requires looking at more than the SEC-reported earnings, and snooping into the sources of reported income and expense.
CNAM's 1Q2010 revenues were up 59% from $5.4 million to $8.6 million compared to 1Q2009. Good, right? CNAM reports non-GAAP earnings of $670,000 or $0.06/sh, well ahead of its non-GAAP earnings of $185,000 or $0.02 per share in the year-ago quarter.
The GAAP earnings (the ones the SEC requires be reported) were only $53,000, or $0.01 per share, down from GAAP earnings of $0.03 per share in the year-ago quarter.
The difference is stark: up a third or down a third? And from how much?
So, what's behind this?
FAS 157.
When CNAM issued stock at $3 in a private offering in 2008 to raise funds to build its new recycling plant, it also issued warrants that could be exercised for shares at $5. As the price dropped in 2009, the value of the warrants under FAS 157 declined, and under GAAP, CNAM recognized "income" from the change in paper value of warrants that CNAM could not exit at a profit but seemed less likely to be exercised. As the price rose in the first quarter of 2010, CNAM was required by FAS 157 to book "losses" associated with value recovery in the same warrants. As CNAM went past $10, investors exercised at $5 and CNAM gained valuable capital with which to increase the size of its business deals.
What investors buy isn't the paper value of warrants a company can't exit, though. Investors buy a future income stream on a diluted-share basis. On that basis – the basis on which investors actually evaluate businesses – CNAM has shone. Net revenues increased 59% – in a quarter in which its recycling plant wasn't fully up and running. Net income (ignoring the warrants) increased 262% over the year-ago quarter. CNAM ended the quarter with over $4m cash, up from less than $750k in the year-ago quarter.
The best news? This growing income stream is in undervalued Chinese currency, the value of which will pop when prices normalize. CNAM is a buy at its current $4 because nobody is bothering to read the details.
CNAM's 1Q2010 revenues were up 59% from $5.4 million to $8.6 million compared to 1Q2009. Good, right? CNAM reports non-GAAP earnings of $670,000 or $0.06/sh, well ahead of its non-GAAP earnings of $185,000 or $0.02 per share in the year-ago quarter.
The GAAP earnings (the ones the SEC requires be reported) were only $53,000, or $0.01 per share, down from GAAP earnings of $0.03 per share in the year-ago quarter.
The difference is stark: up a third or down a third? And from how much?
So, what's behind this?
FAS 157.
When CNAM issued stock at $3 in a private offering in 2008 to raise funds to build its new recycling plant, it also issued warrants that could be exercised for shares at $5. As the price dropped in 2009, the value of the warrants under FAS 157 declined, and under GAAP, CNAM recognized "income" from the change in paper value of warrants that CNAM could not exit at a profit but seemed less likely to be exercised. As the price rose in the first quarter of 2010, CNAM was required by FAS 157 to book "losses" associated with value recovery in the same warrants. As CNAM went past $10, investors exercised at $5 and CNAM gained valuable capital with which to increase the size of its business deals.
What investors buy isn't the paper value of warrants a company can't exit, though. Investors buy a future income stream on a diluted-share basis. On that basis – the basis on which investors actually evaluate businesses – CNAM has shone. Net revenues increased 59% – in a quarter in which its recycling plant wasn't fully up and running. Net income (ignoring the warrants) increased 262% over the year-ago quarter. CNAM ended the quarter with over $4m cash, up from less than $750k in the year-ago quarter.
The best news? This growing income stream is in undervalued Chinese currency, the value of which will pop when prices normalize. CNAM is a buy at its current $4 because nobody is bothering to read the details.
Thursday, May 20, 2010
Google on Background Applications
Faced with a question about battery life of devices running Google's Android, Google's co-founder Larry Page said developers needed to be smarter about their applications' use of system resources, particularly when running in the background. If your phone doesn't last a day, google says to blame your third party developers.
This may expose an experience advantage of Apple in the platform-delivery business, which in the resource-constrained world of the mobile device could be a significant advantage. Apple has delivered platforms for third-party development for decades, and is fully aware how developers (ab)use system resources. Apple's strategy to allow only specific APIs to execute on behalf of a background app in iPhone OS v.4 is a design decision made on the strength of long experience that lazy developers' behavior will reflect on the platform. Apple's MacOS 9 crashed only when misbehaving apps ran; yet, who got the blame? Apple has learned something important about both the behavior of developers and about the nature of the blame game, and Apple's design decision is likely to pay off over the next few years as Apple delivers better and better hardware while making it easier and easier for developers to code non-abusive applications.
Apple's decision to craft a particular customer experience, and to expect that developers who want to reach those customers will code accordingly, has caused some irritation. At the end of the day, though, the proof will be in the pudding: do people like what Apple delivers, or perfer a competitor? The fact that Google is out there doing the same things so differently probably helps Apple in its position that users have broad choice and are not being locked into an Apple solution. There's plenty of room in the sandbox.
This may expose an experience advantage of Apple in the platform-delivery business, which in the resource-constrained world of the mobile device could be a significant advantage. Apple has delivered platforms for third-party development for decades, and is fully aware how developers (ab)use system resources. Apple's strategy to allow only specific APIs to execute on behalf of a background app in iPhone OS v.4 is a design decision made on the strength of long experience that lazy developers' behavior will reflect on the platform. Apple's MacOS 9 crashed only when misbehaving apps ran; yet, who got the blame? Apple has learned something important about both the behavior of developers and about the nature of the blame game, and Apple's design decision is likely to pay off over the next few years as Apple delivers better and better hardware while making it easier and easier for developers to code non-abusive applications.
Apple's decision to craft a particular customer experience, and to expect that developers who want to reach those customers will code accordingly, has caused some irritation. At the end of the day, though, the proof will be in the pudding: do people like what Apple delivers, or perfer a competitor? The fact that Google is out there doing the same things so differently probably helps Apple in its position that users have broad choice and are not being locked into an Apple solution. There's plenty of room in the sandbox.
Tuesday, May 18, 2010
ACAS: IPO Fever?
The Jaded Consumer recently cheered the apparently impending Mirion IPO, which presumably will be closing in short order. ACAS has been busy, though. There's more IPO in the quarter:
ACAS recently enjoyed the Roadrunner Transportation Services (Ticker:RRTS) IPO onto the NYSE at $14/share. Although American Capital entities (including managed funds) held some 1,493,138 shares amounting to a 7.3% interest in the newly-fledged public company (which would be valued at about $10.8m at IPO prices), ACAS claimed only 7,000 shares in its 1Q2010 10-Q. The 7,000 shares seemed to have a FAS-157-compliant value of $7.9m, making it apparent that some kind of share conversion or transmutation was afoot between the end of the quarter and the day the shares launched: 7,000 shares weren't any $7.9m at $14 a pop. Without specific knowledge of the split of RRTS between ACAS and its managed funds, it would be hard to ascertain the receipts that will actually flow to ACAS' bottom line. ACAS valued the debt it was owed by Roadrunner at $21m at the end of 1Q2010, and Roadrunner acknowledged about $20.5m in principal owed ACAS at the end of 2009 but discussed a deferred-interest arrangement in which RRTS would owe ACAS a deferred margin atop its periodic payments. Presmably ACAS' payoff includes all the deferrals in addition to the principal and interest. The comment from the Prospectus was: "This amount includes $20.5 million owed to American Capital, Ltd., which we intend to pay from the net proceeds of this offering." The question is what beyond the $20.5m ACAS gets in the deal. Anybody have an idea?
Now that RRTS is actually trading, it's safe to say that – press release or no – ACAS has its cash back. The next question is whether the Mirion transaction – first filed last August, and re-filed as a bigger deal twice since then – will occur as described. Give it a few days and we may know more.
As for ACAS' debt restructuring, I can't imagine that ACAS doesn't prefer to get out of its default-rate debt and into a more respectable posture from which it could go back to issuing shares above NAV. And why would Paulson have invested in a deal that his due diligence didn't assure him was about to get straightened out? And why would ACAS have parted with shares below NAV without a hard plan to turn the money into improved NAV? It's times like these that the wait until after the end of the quarter to learn what happened seems such a loooooooong time. Hopefully we get some news soon so we can stop speculating, and the market can stop fearing.
ACAS recently enjoyed the Roadrunner Transportation Services (Ticker:RRTS) IPO onto the NYSE at $14/share. Although American Capital entities (including managed funds) held some 1,493,138 shares amounting to a 7.3% interest in the newly-fledged public company (which would be valued at about $10.8m at IPO prices), ACAS claimed only 7,000 shares in its 1Q2010 10-Q. The 7,000 shares seemed to have a FAS-157-compliant value of $7.9m, making it apparent that some kind of share conversion or transmutation was afoot between the end of the quarter and the day the shares launched: 7,000 shares weren't any $7.9m at $14 a pop. Without specific knowledge of the split of RRTS between ACAS and its managed funds, it would be hard to ascertain the receipts that will actually flow to ACAS' bottom line. ACAS valued the debt it was owed by Roadrunner at $21m at the end of 1Q2010, and Roadrunner acknowledged about $20.5m in principal owed ACAS at the end of 2009 but discussed a deferred-interest arrangement in which RRTS would owe ACAS a deferred margin atop its periodic payments. Presmably ACAS' payoff includes all the deferrals in addition to the principal and interest. The comment from the Prospectus was: "This amount includes $20.5 million owed to American Capital, Ltd., which we intend to pay from the net proceeds of this offering." The question is what beyond the $20.5m ACAS gets in the deal. Anybody have an idea?
Now that RRTS is actually trading, it's safe to say that – press release or no – ACAS has its cash back. The next question is whether the Mirion transaction – first filed last August, and re-filed as a bigger deal twice since then – will occur as described. Give it a few days and we may know more.
As for ACAS' debt restructuring, I can't imagine that ACAS doesn't prefer to get out of its default-rate debt and into a more respectable posture from which it could go back to issuing shares above NAV. And why would Paulson have invested in a deal that his due diligence didn't assure him was about to get straightened out? And why would ACAS have parted with shares below NAV without a hard plan to turn the money into improved NAV? It's times like these that the wait until after the end of the quarter to learn what happened seems such a loooooooong time. Hopefully we get some news soon so we can stop speculating, and the market can stop fearing.
Saturday, May 15, 2010
ACAS: Getting Something For Nothing
At the end of last year, ACAS' equity investment in Roadrunner Transportation Systems Inc. had a FAS-157-compliant "fair value" of $0. Shares of the company are being priced from $14 to $16 in a New York Stock Exchange IPO described in a recent SEC filing (this update first provided to the Jaded Consumer by this poster). With a share count of 7,000, this doesn't amount to much for ACAS directly. However, ACAS-managed funds hold over a million shares. Turning $0 assets into hard cash has to be a worthwhile move for ACAS' fee-based asset management service business.
One wonders how many $0 assets on ACAS' books are actually top-tier exchange listings about to happen?
On the debt front, ACAS is slated to be paid $20.5million for subordinated notes which at the end of 2009 had a "fair value" of $17.5m. The 18.5% notes were current at that time. As long as the deal remains pending, ACAS will presumably continue to enjoy the 18.5% interest payable on the $20.2 face value of the notes.
The fact that $0 assets are near-IPO holdings and below-face notes turn out to be about to be repaid early makes one wonder what ACAS' portfolio holds that the street doesn't know and can't price into the shares.
In other news, ACAS' publicly-traded REIT AGNC is issuing 6m new shares at $25.75, with an additional possible 900,000 shares available to cover over-allotments. Given AGNC's end-of-quarter net assets of $22.91 per share, the sale is accretive to shareholder value: AGNC can do the same deals with the same leverage strategy, but bigger – and with more money per share for revenue generation. This is a big win, because it is not only accretive to book value, but grows AGNC by more than 50%. The transaction, which is expected to close May 19, 2010, will net AGNC approximately $147m. On ACAS' management fee of 1.25% of net assets annually, payable monthly, this means ACAS' fee income has gone up overnight by $153,000 per month in cash, or $1.8375 million per year. (Getting the exact number of shares over time requires looking at each quarterly report, because AGNC has instituted a DRIP and realizes above-book sales of newly-issued shares at each dividend payment. Last quarter, that new DRIP equity totaled $62m.) Making larger transactions on the same overhead makes good sense for ACAS, and improves the net it keeps of its gross fee income.
AGNC offers a quick overview of its business, showing how it obtains its interest rate spread and explaining how much leverage it uses to obtain its results. ACAS' ability to grow its managed funds with AGNC's issuance, DRIP, and subsequent offerings shows ACAS still has some managed-funds business capability. ACAS' 2.5m shares of AGNC ensure AGNC owners that ACAS is taking the owners' interest seriously, as well. Making a percentage from someone else's equity is great, but making huge ROE on your own equity is a thing of beauty.
Let's hope for more $0 that turns out to be valuable :)
One wonders how many $0 assets on ACAS' books are actually top-tier exchange listings about to happen?
On the debt front, ACAS is slated to be paid $20.5million for subordinated notes which at the end of 2009 had a "fair value" of $17.5m. The 18.5% notes were current at that time. As long as the deal remains pending, ACAS will presumably continue to enjoy the 18.5% interest payable on the $20.2 face value of the notes.
The fact that $0 assets are near-IPO holdings and below-face notes turn out to be about to be repaid early makes one wonder what ACAS' portfolio holds that the street doesn't know and can't price into the shares.
In other news, ACAS' publicly-traded REIT AGNC is issuing 6m new shares at $25.75, with an additional possible 900,000 shares available to cover over-allotments. Given AGNC's end-of-quarter net assets of $22.91 per share, the sale is accretive to shareholder value: AGNC can do the same deals with the same leverage strategy, but bigger – and with more money per share for revenue generation. This is a big win, because it is not only accretive to book value, but grows AGNC by more than 50%. The transaction, which is expected to close May 19, 2010, will net AGNC approximately $147m. On ACAS' management fee of 1.25% of net assets annually, payable monthly, this means ACAS' fee income has gone up overnight by $153,000 per month in cash, or $1.8375 million per year. (Getting the exact number of shares over time requires looking at each quarterly report, because AGNC has instituted a DRIP and realizes above-book sales of newly-issued shares at each dividend payment. Last quarter, that new DRIP equity totaled $62m.) Making larger transactions on the same overhead makes good sense for ACAS, and improves the net it keeps of its gross fee income.
AGNC offers a quick overview of its business, showing how it obtains its interest rate spread and explaining how much leverage it uses to obtain its results. ACAS' ability to grow its managed funds with AGNC's issuance, DRIP, and subsequent offerings shows ACAS still has some managed-funds business capability. ACAS' 2.5m shares of AGNC ensure AGNC owners that ACAS is taking the owners' interest seriously, as well. Making a percentage from someone else's equity is great, but making huge ROE on your own equity is a thing of beauty.
Let's hope for more $0 that turns out to be valuable :)
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