Wednesday, April 5, 2017

Irving Kahn on Safety

There were two key questions I asked Irving [Kahn] via his grandson. One was, “If you could share a single piece of financial advice that you’ve learned over your life that is absolutely invaluable, what would it be?” [Irving] came back via his grandson. He did an extraordinary job, interviewed him over days about these things. Came back and said, “Safety.” He said, “The #1 thing is paying attention to the downside.” He said, “There are all these people. It’s like they’re on a horse and they can gallop very fast, but do they know what direction they’re going in?” It was kind of this fascinating insight that sounds really banal and prosaic in some ways, but this is coming from a guy of 108 who managed to survive the crash of 1929, World War II, Vietnam, any number of crises and crashes. When I started to think about that, this is one of those ideas that if you truly internalize it, it actually has an enormous impact on you.

He said, for example, “You’ll find that if you make reasonable gains and avoid disastrous losses, you’ll outperform all of your gambler friends.”
Qtd in The Manual of Ideas, March 2017.

Tuesday, April 4, 2017

"Seadrill says shares to have little value after restructuring" $SDRL

The current shareholders of Seadrill should expect to lose almost all value of their stock as the company prepares for potential bankruptcy proceedings to restructure debt and liabilities of $14 billion, the rig firm said on Tuesday.

It also said that its banks and other lenders had agreed to extend ongoing restructuring talks by three months to July 31.

"We currently believe that a comprehensive restructuring plan will require a substantial impairment or conversion of our bonds, as well as impairment, losses or substantial dilution for other stakeholders," Seadrill said in a statement.

"As a result, the company currently expects that shareholders are likely to receive minimal recovery for their existing shares ... We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or chapter 11 proceedings, and we are preparing accordingly," it added.
Previously in 2014.

Company has a note due September 2017 that was offered at 41 cents today, which is a yield to maturity of >300%. The September 2020 note also trades at about 40, so the yield curve is totally inverted (i.e. the bonds are trading at an estimated recovery value not on a yield basis).

Peabody Energy Options Contract Adjustment

On March 17, 2017, the United States Bankruptcy Court for the Eastern District of Missouri Eastern Division confirmed the Second Amended Joint Chapter 11 Plan of Reorganization (“Plan”) for Peabody Energy Corporation (BTUUQ). The Plan became effective on April 3, 2017, and BTUUQ shares were canceled.

Effective April 3, 2017, existing BTUUQ options are adjusted to no longer call for the delivery of Peabody Energy Corporation shares upon exercise.

Friday, March 17, 2017

"Judge Announces Intention To Confirm Peabody Energy Plan Of Reorganization, Paving Way For Emergence" $BTUUQ

Peabody Energy announced today that the judge presiding over the company's Chapter 11 process in United States Bankruptcy Court for the Eastern District of Missouri has ruled that he intends to confirm the company's amended plan of reorganization after finalization of language regarding a settlement with the U.S. Department of Justice.

The plan, which received overwhelming support from creditors with an overall approval rate of 93 percent and unanimous acceptance by all 20 voting classes, articulates Peabody's strategy to emerge from the Chapter 11 process with a strong balance sheet, well positioned to build a successful future for the company's stakeholders. Peabody expects to emerge from Chapter 11 in early April 2017, less than one year after commencing the Chapter 11 process.
Naturally, there is still a bid of $1.78 for the stock.

Wednesday, March 15, 2017

Special Opportunities Fund 2016 Annual Report

The second half of 2016 was quite eventful for Special Opportunities Fund. In July, the Fund distributed rights to its common stockholders to purchase a new class of convertible preferred stock that raised $55.6 million. A portion of that cash was used to fund a self-tender offer that was completed in October for 1.16 million shares of common stock at 97% of net asset value. After giving effect to a year-end cash dividend of $0.81 per share and ignoring the rights offering or self-tender offer, the common shares of the Fund gained 5.13% in the six-month period ending December 31, 2016, closing at $13.65 vs. an increase of 7.82% for the S&P 500 Index. The Fund’s discount to net asset value fell slightly over the second half of 2016 from 13.08% to 12.28% (and currently is about 10%).

Here is an update on some of our significant positions.

It would be an understatement to say that our investment in Emergent Capital has been a disappointment. Emergent owns a portfolio of life insurance policies with an aggregate face value of approximately $3 billion but its actual cash flow has been significantly less than what had been projected. It has become clear that Emergent’s capital structure will need to be further modified to deal with holding company debt and operating and legal expenses and that will likely result in dilution of the common stock.
Previously on SPE. The discount to NAV is currently 9.9%. The big self-tender has tightened up the discount, but it is arguably still to wide for a closed end fund activist fund (What's Good For the Goose is Good For the Goldstein).

Also, Emergent has been a special situation investor favorite for years but has basically gotten obliterated. This is the company with the portfolio of life insurance policies, so it's short the life expectancy of a group of 600 or so people. People point to the present value of the policies, but if the insureds live longer than expected in the valuation model then the present value melts away. Capital has become expensive for Emergent and it has to continue to raise capital to pay the premiums on the policies. I have never understood why the company couldn't negotiate a deal with the insurance companies that wrote the policies to terminate them, since insurance companies have a much lower cost of capital than Emergent there ought to be a win win deal.

Friday, March 10, 2017

High Plateau Drifter: "Of War and Medicine"

Few seem to understand the real threat of globalism and why the U.S. generals opposed it by supporting Trump in the 2016 election. The answer is obvious if you think about it.

If one global government gains power over the entire planet there would be no need for national armies or navies to defend against other nations. A one world government would only need police - lots of police. The generals would be unemployed.

And that is why the generals jumped on the Trump campaign wagon. For them, globalism is a vastly more powerful threat than Russia to their careers and their institutions.

But a more immediate problem for the generals is their conflict with the CIA. The CIA has been financing and equipping proxy armies to fight wars, but of course the proxy armies cannot be controlled, go rogue, and the military must come in and fight the rogue armies that CIA created.

Those proxy wars in the middle east are a significant irritant but not a serious problem. But the CIA led and funded coup in Ukraine is the first CIA step toward destabilizing Russia itself, beginning with meddling in the Islamic areas of southern Russia and in national Russian politics, hoping to encroach into Russia proper from the South and ultimately stage a Maidan in Moscow.

The generals know that Russia has superb first strike nuclear weapons, superb air defenses and little else. A first strike would give Russia a huge advantage if Russia is left with no option other than war with the U.S. These CIA efforts to destabilize Russia and make it a vassal of the U.S. create a serious risk of a massive nuclear first strike. Russian ballistic missiles can reach the U.S. in half the time it takes for U.S. missiles to reach Russia. Their air defenses would also destroy some number of retaliating U.S. nukes.

The fact that the CIA could trigger an attack from Russia is alarming to the generals. Indeed, it is quite likely that they would be unaware of the provocation and that such an attack could take them entirely by surprise. And the fact that the generals now have a president they can trust with custody of the red button is but little comfort. Comforting perhaps as compared with war mongering Hillary in control of the red button, but providing no comfort whatever with respect to the decision tree in Moscow.

In fact, Russian leaders know perfectly well that the CIA is listening and it is highly likely that their conversations are staged to conceal the real breaking point at which Russia attacks. (Mass surveillance merely multiplies the opportunities to distract and confuse the entity that is doing the listening.)

Now consider Congress, which has the responsibility for establishing and monitoring the CIA. There are 535 of them, counting both House and Senate, so many that no individual is going to feel direct responsibility for, or take ownership of, what the CIA does. Each of them spends about 5 hours of each day dialing for dollars and related activities for contributors. He or she never reads legislation, having only time for summaries prepared by staff.

It is up to the president to fix the CIA and hope to survive the process. He will get no help from Congress.

Indeed, as those in Congress assiduously court their contributors every day, much the same disease infects the medical insurance debate. Medical insurance absorbs 35% of premiums collected in salaries and overhead of the insurance companies. Rising deductibles have none of the cost containment features that apply to insured amounts above those deductibles, and this causes hospitals to raise their retail prices to match the deductibles of each different policy issued in their service area, all tracked by computer.

Health insurance is a confidence game meant to strip wealth from the middle and upper middle class (The poor have Medicaid).

In order to make health care affordable, you must have a first dollar, "take it or leave it" payment for services, with only nominal deductibles of perhaps $50 per visit. Making health care affordable is easy, you just pass a law allowing people to purchase Medicare early, long before retirement. You copy the existing reimbursement schedules and price it by age according to actuarial tables, with higher rates for those with a body mass index above 30.

So why does Congress fail to do that which would benefit the vast majority of the people? Simple, it would utterly destroy the health insurance industry, a small and marginal industry with small and marginal political contributions. It's 35% vig would disappear and the gaming of higher deductibles and higher retail hospital charges to match would end.

Fear is the best way to maximize political contributions from vested interests and minimize the amount of time dialing for dollars. Spending five hours per day day dialing for dollars is proof of insufficient fear and insufficient respect among lobbyists and special interests. Congress should go ahead and wipe out the existing health insurance industry. The voters would love the cost savings, and fear among other special interests wishing to avoid the same fate would rise to the point where revenue would probably double.

The 435 House members are about the size of a reinforced infantry company, but obviously lacking in cooperation, self discipline, and strategic thinking. It is the special interests that should be calling the members. The fact that the members must do the calling (begging) is a clue to understand why our country is circling the drain.