CMM is doing a reorg and got new equity financing in the form of a convertible. Any thoughts?
Herb Greenberg (who is the short-picker at TheStreet.Com) sez:
Why Some Smart Investors Think One Bankrupt Company's Stock Is Worth the Risk
By Herb Greenberg
Senior Columnist
9/9/99 6:30 AM ET
thestreet.com
And now, for something completely different: Like a broken record, this column often warns that any time a company files for bankruptcy, existing shareholders are likely to wind up with little or nothing. But there are exceptions, such as Alexander's (ALX:NYSE), the former department store operator that turned its underlying real estate into a gold mine.
Another example, according to several investors -- including one who made a bundle on Alexander's: Criimi Mae (CMM:NYSE), a Rockville, Md.-based mortgage real estate investment trust. Here's a company that "very quickly went from the top of the world to bankruptcy court," says California hedge fund manager Eric Von der Porten, of Leeward Investments, who owns Criimi Mae's preferred and common stocks. No stranger to this column, Von der Porten, a former bank credit manager who specializes in distressed securities, is most often quoted here bashing the likes of Planet Hollywood (PLHYA:OTC BB), Boston Chicken (BOSTQ:Nasdaq) and Iridium (IRIDQ:Nasdaq).
What makes this bankruptcy so different? Assets exceed liabilities, for one. "Criimi, it would appear, at last has some fundamental soundness to its asset base, and the trends are moving in the right direction." By that he means that even in bankruptcy, Criimi is profitable, generates positive cash flow and continues to report positive shareholders' equity. (Criimi sought bankruptcy protection after a liquidity crunch related to, among other things, the Long Term Capital fiasco and its impact on the financial markets.)
Of course, there's plenty of risk, including a crummy (criimi??) quality balance sheet loaded with junk-grade mortgage-backed securities, the chance of defaults among its mortgage holdings and the possibility of dilution to existing investors if the company issues stock as part of its bankruptcy reorganization. A plan is expected to be announced Friday. Von der Porten, meanwhile, believes the company could eventually earn 50 cents per share a year, once it emerges from bankruptcy, even after suffering dilution from any new stock that's offered and higher financing costs.
Those, of course, are only his assumptions, but you won't find any argument in the possibility that Criimi's common stock may hold value from William Ackman, a partner at Gotham Partners, which owns a 9.8% stake in Criimi bought after the bankruptcy filing. (Ackman also bought into Alexander's after its bankruptcy filing.) Ackman believes the company's reorganization will include selling 30% to 50% to another buyer, who will get convertible stock that could convert in the 3 to 4 range. (The stock, which traded as high as 13 over the past year, closed yesterday at 2 1/4.) He also believes the company will resume paying a dividend after bankruptcy in the form of preferred stock (it used to pay an annual cash dividend of $1.60 per share) and that it could make a special one-time dividend to cover past dividends that have been held back.
Criimi officials couldn't be reached.
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