Wednesday, March 10, 2010

Unwinding the Successful U.S. Concrete (RMIX) Trade

This morning U.S. Concrete (RMIX) reported its awful 2009 results, complete with a going concern warning.

The stock is down 25 percent on the day, to 40 cents, and the bonds are down slightly, at 56 bid 59 ask. Some big blocks of bonds have traded at the 58 level.

If you recall from my posts about the RMIX capital structure arbitrage trade, I bought the notes at an average price of 58.5. I was able to get out of them today for ~56, a loss of about 4 points (7%) counting the loss of accrued interest since the notes are now trading flat.

However, I hedged the notes by selling stock at $1, which has fallen 60%. And I sold more stock on the way down, including on Monday when RMIX inexplicably rallied as part of the market wide short squeeze.

Adjusted EBITDA was only $25 million in 2009! So the current enterprise value of $308 million is 12x last year's EBITDA - expensive!

I have not covered the short yet, since I think the stock is worth zero, but I will start to cover as it goes lower. I mainly wanted to get out of the bonds today because they are under-reacting to the financial distress.

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