tag:blogger.com,1999:blog-4631423976894080706.post832593563606440155..comments2023-10-17T06:55:06.255-04:00Comments on the red corner: School Specialty 3.75% Convertible Subordinated Debenturesred.http://www.blogger.com/profile/04089263693762295793noreply@blogger.comBlogger57125tag:blogger.com,1999:blog-4631423976894080706.post-20929100711127530012013-05-29T02:39:47.764-04:002013-05-29T02:39:47.764-04:00Hi there - thanks for the write up here. Very insi...Hi there - thanks for the write up here. Very insightful read into the situation and some great points by the commenters. Do you have an update to the latest on the issue here?<br /><br />Thanks very much - Dylan.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-29639832399410376642013-02-13T17:01:50.608-05:002013-02-13T17:01:50.608-05:00i think a 50M dip valuation is fine but the busine...i think a 50M dip valuation is fine but the business is EBITDA positive and cashflow positive; the upcoming school season means it might need to cash to build up inventory but when it comes to dec/jan they will be collecting those receivables and then we should count in the cashAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-90650518511958253552013-02-11T08:32:16.191-05:002013-02-11T08:32:16.191-05:00Convertibles are worth 17 cents based on Convertib...Convertibles are worth 17 cents based on Convertible noteholders proposal i.e 50m Jr DIP facility to be swapped to 75% equity. Minority Convertible holders are crushed under there plan. At EV 250m, Debt of 140m (95m term loan+45m revolver), equity is worth 110m.<br />Of which 75% is takenover by Jr DIP lenders and only 25% ie 27m is distributed to Convertible. Which means only 17 cents (27/157) recovery.vinodjainhttps://www.blogger.com/profile/10721974230288025099noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-60078947754118520202013-02-09T06:13:48.817-05:002013-02-09T06:13:48.817-05:00Thanks Sam, i understand that at 95m credit bid ze...Thanks Sam, i understand that at 95m credit bid zero recovery for convertibles. But i want to understand what does it mean if company have checked the box corresponding to "debtor estimates that funds will be available for distribution to unsecured creditors" and not the other one which is "Debtors estimates that, after any exempt property is excluded and administrative expenses paid, there will be no funds available for distribution to unsecured creditors"<br />Ref: pp 1 of petition filed on Jan 28thvinodjainhttps://www.blogger.com/profile/10721974230288025099noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-89557602829030222492013-02-07T14:44:14.326-05:002013-02-07T14:44:14.326-05:00Unfortunately, confirmation from the unsecured cla...Unfortunately, confirmation from the unsecured class is NOT necessary to approve a 363 sale -- it can absolutely move forward without buy-in from the noteholders so long as the judge allows it.<br /><br />Certainly the creditors committee (or ad hoc noteholders) can file objections, but if the management says they think a 363 sale process is best it will be tough to overcome -- the judge will typically show deference unless there is blatant bad actions/self-dealing, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-39793295234927455152013-02-07T11:38:26.106-05:002013-02-07T11:38:26.106-05:00Did you even read the comments we've already m...Did you even read the comments we've already made?<br /><br />Read Red's comment at February 1, 2013 at 3:43 PMTboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-87316093697319354862013-02-07T11:33:16.904-05:002013-02-07T11:33:16.904-05:00It's a good question, but take a look at Docke...It's a good question, but take a look at Docket #0119, Exhibit B.<br /><br />You need 2/3 in $ face value and 1/2 in # of holders in the unsecured / convertible note class to approve either a 363 sale or a re-org.<br /><br />Unless you believe that the noteholders receive less value in a re-org than a sale (which as I've outlined above, I do NOT believe... but again, reasonable minds can disagree), a re-org will be the more likely outcome barring a much higher 363 sale value (i.e. another bidder comes in and substantially tops the $95m offer).<br /><br />Taking a look at the the convertible noteholder list, Zazove stands in the way of any disunity amongst the class. They are a traditional convertible debt manager (and not a distressed player), so one game theoretical concern we may have is Zazove selling to another one of the noteholders.<br /><br />That said, Zazove is an economic animal so it will not take a discount to their view of fair value, so another noteholder will have to pay north of the current market price (~40¢) to gain control of the situation.<br /><br />Btw, some very good distressed names in the Notes:<br />- Angelo Gordon<br />- Steel Partners ("Steel Excel")<br />- Q Investments ("R2")<br />- Hudson Bay<br />- One EastTboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-17783955962912667682013-02-07T08:57:54.262-05:002013-02-07T08:57:54.262-05:00Question for you on your point 2 (plan vs. sale): ...Question for you on your point 2 (plan vs. sale): assuming some (but not all) of the convert holders are willing to put in more money, why wouldn't they prefer to do it through the 363 sale process?<br /><br />Seems to me that's the risk here for the converts -- for anyone who is looking at buying the company (including any subset of the converts), the 363 process offers a lot of advantages (especially a faster timeline)... <br /><br />Agree with you that the sale process doesn't maximize returns to converts, but if I put myself in the mindset of putting in new money the relevant question should be the return on that investment / total return, which may be higher EVEN IF I were a large holder of the current converts...?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-71974982863698975662013-02-06T12:09:45.336-05:002013-02-06T12:09:45.336-05:00under petition filing filed on Jan 28th, the debto...under petition filing filed on Jan 28th, the debtors have checked the box corresponding to debtor estimates that funds will be available for distribution to unsecured creditors i.e iam assuming some recovery to unsecured creditors which included convertibles<br /><br />But should bayside buy the company at 95m (credit bid), our forum is estimating no recovery to convertibles. Guys are we missing some thing?vinodjainhttps://www.blogger.com/profile/10721974230288025099noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-14948304858411990592013-02-06T11:49:33.661-05:002013-02-06T11:49:33.661-05:00but is there a liquidity crises?
Did company reall...but is there a liquidity crises?<br />Did company really breached minimum liquidity covenant last month ?<br />cash flows are very seasonal but historically Q3 (Nov-Jan) cash flows are very strong and positive due to payment form customers who have purchased goods in Q1 and Q2.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-76225607465982486142013-02-05T11:08:20.804-05:002013-02-05T11:08:20.804-05:00To anon @ Feb 1, 1:00 pm --
No, you’re right abou...To anon @ Feb 1, 1:00 pm --<br /><br />No, you’re right about YMC – that decision is still up-in-the-air anyways. Side note: frankly, I think the judge was wrong in assuming ill intentions by Credit Suisse -– my interpretation is that it wasn’t anything more nefarious than simple greed (underwriting fees) and agency / principal issues. This subject has been beaten to death though (ABACUS and now S&P), plus everybody comes at it with religious opinions, so I know I’m not going to convince anybody one way or the other.<br /><br />Two things re: SCHS:<br /><br />1. Much of this case is going to boil down to discovery re: the May 2012 financing. Equitable subordination, make-whole payment, financing terms… there’s a whole host of issues around the discussions between Bayside and Management.<br /><br />2. The fact that the Debtors’ 1st day petition is for a sale vs. a re-org should not be a surprise to anyone based on Management’s actions leading up to filing. Recoveries significantly higher than par are predicated on a re-org. If the unsecured noteholders do not get organized sufficiently to fund a rights offering and arrange for an exit term loan, then yes, recovery on the converts at 38¢ on the dollar will be impaired barring another acquiror steps up.<br /><br />My view that whoever ends up holding the equity of this Company -- whether it's Bayside/HIG, the Convert holders, or some other acquiror -- is going to make multiples on their money over the next 5 years is unshaken, however.TboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-70382940316371485362013-02-04T16:43:37.592-05:002013-02-04T16:43:37.592-05:00This comment has been removed by the author.TboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-4282235763099641772013-02-04T16:40:21.770-05:002013-02-04T16:40:21.770-05:00This comment has been removed by the author.TboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-32589681396371620172013-02-01T16:46:21.558-05:002013-02-01T16:46:21.558-05:00CheersCheersred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-57405314426835375612013-02-01T16:44:01.668-05:002013-02-01T16:44:01.668-05:00Thanks for the clarification -- I follow the math,...Thanks for the clarification -- I follow the math, though I'd worry about using only 15 for the DIP. Even if my scenario is high (entirely possible) they probably end up drawing at least the 28.9 (end of March) + some closing fees as contemplated in the new DIP budget (filed as Exhibit A to Docket #86).<br /><br />Guess converts can hope someone will show up with a strong bid at the auction -- at any rate, should be an interesting case to follow.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-49880752491125969532013-02-01T16:08:01.384-05:002013-02-01T16:08:01.384-05:00I'm using 15 for DIP and and three year EBITDA...I'm using 15 for DIP and and three year EBITDA average of ~65. A 2.5x multiple, I should have said. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-86585287153295243502013-02-01T15:58:31.013-05:002013-02-01T15:58:31.013-05:00What are you using to arrive at 2x estimate?
Fro...What are you using to arrive at 2x estimate? <br /><br />From what I can see Bayside bid is 95 plus ABL/other debt plus any DIP drawn in the case (could be up to 50). Simple math taking: <br /><br />* 95 (pre-petition Bayside, argument here over make whole), plus<br />* 50 (full DIP), plus<br />* 45 (pre-petition ABL, argument here about what "normalized" ABL might be), plus<br />* 10 (cap lease) <br /><br />Gives you an implied EV of 200. On EBITDA of ~45 this is 4.4x, which may still be low but not 2x low?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-21497665202103694112013-02-01T15:43:07.260-05:002013-02-01T15:43:07.260-05:00You're not missing anything -- if Bayside'...You're not missing anything -- if Bayside's bid wins, the converts will be worthless.<br /><br />However, the Bayside bid, at 2x three year average EBITDA may be (far) too low a valuation.<br /><br />The first day pleadings suggest that convert holders are organized. The prospect of other, more realistic bids is not perhaps an unreasonable one.<br /><br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-70291480268660989112013-02-01T14:52:28.024-05:002013-02-01T14:52:28.024-05:00I've taken a look here- can't seem to wrap...I've taken a look here- can't seem to wrap my head around "why someone would want to take a stab at the bonds". Not saying I'm correct, just saying I'm clearly missing something.<br /><br />To answer the above (Anon @ 2:12pm) if the Bayside bid is the winning bid, the recovery on the converts would be 0; which is part of reason I'm having a hard time getting interested... what am I missing?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-51863286281332985042013-02-01T14:12:29.012-05:002013-02-01T14:12:29.012-05:00sorry all; im not sure if i am comprehending this ...sorry all; im not sure if i am comprehending this properly<br /><br />so; bayside will try to purchase the company for 95M in the form of a credit bid plus cash to pay off the obligation existing under the ABL lenders<br /><br />the 95M will pay for all assets of the firm and also buy out the 3.75% convertible subordinated debentures? so how do i find out how much the CSDs will be getting paid?<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-9706796742408645432013-02-01T13:56:15.162-05:002013-02-01T13:56:15.162-05:00i took a brief look at your case; and in case i wa...i took a brief look at your case; and in case i was missing something; it seemed like the YMC case doesnt particularly apply to the SCHS case..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-86754291029621069102013-02-01T13:00:50.898-05:002013-02-01T13:00:50.898-05:00If you're betting on equitable subordination, ...If you're betting on equitable subordination, you will most likely be disappointed. Near impossible to prove. For every 1 Yellow Mountain Club, there are a dozen that go nowhere.<br /><br />Having said that, I can understand why someone would want to take at a stab at the bonds here.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-80854525295325657132013-01-30T14:36:40.356-05:002013-01-30T14:36:40.356-05:002 words: Equitable Subordination
http://law.utk.e...2 words: Equitable Subordination<br /><br />http://law.utk.edu/wp-content/uploads/2012/10/YellowstoneMountainClub.pdf<br />TboneSamhttps://www.blogger.com/profile/07365046731660230233noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-81895367457356174622013-01-30T13:48:34.360-05:002013-01-30T13:48:34.360-05:00Looks like unsecureds are pretty organized. Quite ...Looks like unsecureds are pretty organized. Quite an interesting situation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-48830550498098799022013-01-30T13:37:42.353-05:002013-01-30T13:37:42.353-05:00For anyone interested in this name, if you're ...For anyone interested in this name, if you're not following @DDInvesting on twitter, you should.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.com