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.

Monday, February 27, 2017

High Plateau Drifter

An astute analyst described the 2016 presidential election as a contest between the CIA and the military, each with its own candidate.

That same analyst stated that Trump wanted to pull Russia away from its alliance with China, thereby limiting the economic resources needed to maintain world wide military dominance. Thus it is remarkable to see how the generals, who backed Trump as soon as he took the lead in the Republican presidential primary, and now have taken over his foreign policy positions, will have none of it and want to reinvigorate the Russia China alliance and keep preparing for war against both at once.

These Generals seem to have no grasp of economics and more specifically, the meager resources available to the U.S. to undertake such a military posture over an extended period of years. Ironically, until recently China and to a lesser extent Russia were lending us the money to fund our military through their purchase of treasury bonds. Lately they have been selling, presumably to central banks.

We now have elements of the deep state fighting with one another - competing for scarce resources, generating conflicting factions within the intelligence community and now competing with the military. As the bureaucracy metastasized and generated multiple fiefdoms, this kind of conflict became inevitable. And as the CIA formed and funded armed proxy forces which then went rogue requiring U.S. military intervention resulting in the deaths of American soldiers in the clean up operation, natural tensions have arisen. The abortive raid in Yemen (which the enemy knew was coming) is a classic example.

And now the Republican Congress is talking up Greek style "austerity" with no stimulus and paying down the national debt. This will end badly. We either inflate or crash, and in either case working class anger increases, and with austerity it boils over quickly.

Monday, February 20, 2017

Peabody Energy Prices $950 Million Term Loan

The term loan is expected to close on April 3, 2017, concurrent with the anticipated effective date of Peabody Energy’s plan of reorganization and subject to court approval. The proceeds from the term loan will be used to fund a portion of the distributions to creditors provided for under the plan of reorganization.

Friday, February 17, 2017

"'Alpha' in Real Estate"

Great essay in PIB about real estate investing:

I’ve met many rich men in my long life, and I must confess that the category of rich man that most annoys me is the real estate landlord, simply because he seems to do the least work for his wealth. I’m not talking about visionary developers who create buildings out of nothing, but rather those who allocate their capital—or, often, the capital of their ancestors—to existing real estate, leverage it up, and sit back passively for years collecting rent checks and refinancing along the way, secure in the knowledge that the government offers explicit and implicit subsidies to their “efforts.” It’s both amazing and annoying how well you can compound wealth over time in this way, provided you’re lucky enough to avoid a downturn in which your leverage kills you.
I've seen many real estate investors blow up. They seem to operate under the philosophy that they should have as little equity as possible in their holdings, constantly tapping it with refinancings and using the proceeds to buy more property.