Monday, June 11, 2012

EK Exide Cenveo Forest City/Added 50 RMT at $8.62

According to an article in the WSJ, Eastman Kodak is having trouble selling its patents. A recent adverse ruling by an administrative law judge at the ITC, which invalidated an important Kodak patent under the obviousness standard, may be hurting that effort.

The unsecured 2013 bond is trading at between 10 to 15. That range suggests a high likelihood of no recovery at all for the owners of EK's unsecured senior debt in my opinion. EK The 2013 bond lost about 1/2 of its value after the ALJ decision, falling from a 20 to 30 trading range to the current 10-15 range.

Since a zero recovery is not 100% certain yet, some speculators will pay up to 15 cents on the dollar for one of  EK's unsecured senior bonds. It is conceivable that the patent sale will secure the hoped for amount of cash, and the ITC will reverse the ALJ's finding invalidating the patent in EK's case against Apple and RIMM. But even with those favorable outcomes, which appear less likely now, I predicted earlier a value of just 20 to 30 cents on the dollar for the unsecured debt. A bankruptcy liquidation may very well be in EK's future. Creditors may not be convinced that EK's remaining businesses, including the consumer printing division, are viable. Consequently, those creditors may come to a realization that their recovery could be improved by selling off, or closing down,  all remaining operations now and turning EK simply into a patent troll.

An article at MarketWatch lists Tennessee as the best state for retirement.

1. Exide (own common as LT and two 2018 senior secured bonds-Junk Bond Ladder Basket Strategy)Exide Technologies reported a 3 cent per share loss for its fiscal 4th quarter on $782.6 million in revenues. The quarter included $7.2 million in restructuring and impairment charges. The consensus estimate was for earnings of 8 cents per share on revenues of 750 million. Free cash flow generation was approximately $55.7 million in the quarter compared to a $14.7 million use of cash in the prior year period. 

Since I am primarily concerned about the timely payment of interest and par value at maturity, I thought that this report was okay given the free cash flow number, the amount of cash on the balance sheet and the revenues being higher than anticipated by the analysts. 

This is a link to Exide's Form 10-K for the F/Y ending 3/31/2012. 

As of 3/31/12, the company had $752.93 million in long term debt. Of that amount, $675. million consisted of the 2018 senior secured note. Approximately $60 million was owed under a subordinated convertible note maturing in September 2013. (page 62: Form 10-K) The 2018 senior secured note is described at pages 35-36 and 62-62 of that report. The company had $155.4 million in cash and cash equivalents. Approximately $152.8 million was available under Exide's credit facility.  

A columnist at Forbes argues that XIDE is a "bargain basement" stock.

I recently noted that Exide had agreed to sell some land in Frisco, Texas for $45 million, Item # 2 Exide. That injection of cash is another positive for the bond owners in my opinion. In a  SEC Form 8-K filing, Exide asserted that it expected to net $37-$40 from the $45 after certain expenses which include remediation of the plant site. The transaction is estimated to close in calendar 2013. The settlement agreement with Frisco can be found as an Exhibit to that 8-K filing.

In response to this earrings report, both the 2018 bond and the common stock rose in value. The common shares, XIDE, climbed 15.1% last Friday to close at $2.82, putting me back close to even on my Lottery Ticket purchase.  Bought 70 XIDE as LT at $2.75

I am slightly in profit territory on my two Exide bonds based on last Friday's closing price of 84.2. Bought 2 Exide 8.625% Senior Secured Bonds Maturing 2/1/2018 at 81.375 (December 2011). This bond is trading near 80 in early morning trading today. Earlier last week, I could have averaged down by buying no less than 2 bonds at 75. While I was tempted at that price, I am at my limit with my existing holdings, and I am a stickler most of the time about those exposure limits.  

2. Cenveo (own 1 second lien bond-Junk Bond Ladder Basket Strategy): Since I own a second lien CVO bond, I am interested in news about Cenveo increasing the amount of its first lien credit facility. Cenveo increased its senior secured credit facility by $65 million. The company also executed an amendment to its credit facility that would allow it to repurchase up to $135 million of its outstanding 2013 subordinated note. (see also 8-K filing

S & P has a BB- rating on the senior secured debt. TEXT-S&P

CVO is over leveraged in my opinion. As of 3/31/12, it had long term of $1.229+ billion, page 12 CVO-2012.3.31-10Q. The 2013 subordinated note is the next scheduled maturity, with $152+ million in principal amount outstanding. The credit facilities maturing in 2014 and 2016 had a total of 461+ million outstanding as of 3/31/12. Those facilities are senior in priority to the second lien note. Other than the 2013 subordinated note, the most important  bond maturity prior to 2018 is a $225 million 11.5% senior unsecured noted maturing in 2017. That note was issued 3/28/12, Prospectus. There is also a $86+ senior note maturing in 2017. Assuming CVO has no problem in extending its credit facilities beyond 2018, then those 2017 notes will be the next major debt hurdle for the company, assuming it is successful in retiring the 2013 subordinated note.

As noted in recent posts, CVO did run into some recent difficulties raising funds in the bond market to pay down that 2013 note (see discussion at CVO)

3. Forest City (own common as a LT and 1 senior bond maturing in 2015-Junk Bond Ladder Basket Strategy): Forest City reported a first quarter FFO of $89.2 million or 42 cents per share. First quarter EBDT (earnings before depreciation, amortization and deferred taxes) was $102.4 million. SEC Filed Press Release

The debt is listed at page 11 of the SEC Form 10-Q for the quarter ending 4/30/12.

I have periodically traded the common shares as part of my Lottery Ticket Basket Strategy. The last purchase was 30 shares at $11.58. Before the onset of the Near Depression, the shares were trading at over $60: FCE-A Interactive Chart. The common shares, FCE-A, rose 3.09% last Friday to close at $14.34.

Forest City Enterprises profile page at Reuters.

4. Added 50 RMT at $8.62 Last Friday (see Disclaimer): This brings me up to 642.141 shares of this closed end stock fund. I am reinvesting the dividend. RMT is the symbol for the  Royce Micro-Cap Trust. This fund is currently paying quarterly dividend of 13 cents per share. The last distribution went ex dividend on 6/4/12.

This fund invests primarily in stocks with less than a $500 million market capitalization.  Royce Micro-Cap Trust (RMT) As shown by a chart at that website, this fund has substantially outperformed the Russell 2000 since RMT's inception in December 1993.

During 2009 and 2010, as noted in last Friday's blog, I added to this position several times in 50 share lots. Bought RMT at $6.73 August 2009; Added to CEF RMT at $7.64 January 2010; Added 50 RMT at 7.82 with Cash Flow July 2010; Added 50 RMT at $7.63 September 2010 All of these purchases were made from cash flow.

As of 6/7/12, the net asset value was $9.78 per share.

The fund does use leverage.

This is a link to the SEC Form N-Q which lists the fund's holdings as of 3/31/12

This is a link to the last SEC filed shareholder report for the period ending 12/31/11.

RMT page at the Closed-End Fund Association.

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