...I know longer doubt the restructuring of this company will be successful. I have now made my purchase and will sock it away for as long as it takes.
I never did doubt that the restructuring of the company would be "successful". By "successful" I mean that the company continues to operate as a going concern, perhaps on a somewhat reduced or (hopefully!) rationalized and more efficient scale. In keeping with this, I bought a reasonably large amount of Loewen bonds (before they filed Ch. 11), paying a price of 50 for them. Since then they rose as high as 68, and have fallen to as low as 48 (where they are now). My estimate was that there was enough value in the company for it to eventually be able to pay at least 70 and perhaps as much as 80 cents on the dollar (for their secured debt). At the time it looked to be a sensible investment - 50% return in three years or less.
However, it has always been my contention that the common stock will prove to be worthless. In keeping with this I shorted a small amount of their common stock (15% the size of my bond position) when the common was at about $CDN3.00. I still don't see how *any* value whatsoever will be realized for the common stock holders - I still think it is inevitable that the common will prove to be worthless. If anyone can convince me otherwise, please, please, please (!) do -- just as soon as I race out to cover my short, I'll double up on my 50-cents-on-the-dollar bond position.
Lawrence Burg wrote:
Saw that. Something's gonna give. Downside is pretty minimal at this point, considering who's financing their recovery.
Who is it that is financing their recovery?
And not to be trivial about it, but the downside is 100%. Just because the shares are "cheap" does not make them "low risk". Essentially the common stock is now an "option" on a long shot that they'll be able to deliver 100 cents on the dollar to the bondholders, and 100 cents on the dollar to the preferred shareholders, and *then* have value left over for the common. Do you really believe the odds of this happening, the possible payoff, and the possible loss justify buying the common stock today?
- Daniel |
