Hiya 60,
Seems to be a change in stance from him and now proposing something else for QVCGP which I thought were so easy to remove before? I find it hard to continue to invest my mental energy into TJ as I just don't agree. Everything seems to benefit the common when history continues to show the common is the one that loses.
If he's right then excellent and good for him! Outside of that he and I just look at investing different. It's one thing to quote Warren Buffett or Peter Lynch and go all in because a company is like AMEX where it's clear everyone is using the product but beaten down, it's another thing to ignore secular decline altogether and have a bad balance sheet. It's Q after Q of QVC missing targets and seeing business decline. I've been pretty clear that this is a revenue story myself since Athens ended.
Last time I will engage with a TJ post as he just doesn't intellectually stimulate me anymore.
<< Something is brewing.>>
Sure, we all know that, but an equity friendly LME? Or chapter 11? Business related filings are on the rise and this data is only up to March of 2025:
Tells you the market is not afraid of seeing a chapter filing and given the balance sheet of QVC coupled with its income and cash flow looking at the above and fitting QVC in isn't a stretch.
I again go back to the timeline of events which itself seems to go beyond an "LME":
- March 7th, 2025: Fitch downgrades QVC to B- from B
- May 23rd, 2025: QVC Group suspended paying QVCGP dividend.
- May 27th, 2025: Greg Maffei chairman agreement extended. The Employment Agreement provides for an initial term expiring December 31, 2025, which will be automatically extended through December 31, 2026 unless a notice of nonrenewal is provided by either party at least 30 days prior to December 31, 2025, or Mr. Maffei’s employment with the Company ends before such date (such period of employment, the “Term”).
- May 28th, 2025: QVC hired Evercore, Inc and Kirkland & Ellis and senior holders hired PJT Partners and David Polk & Wardell
- LITNA holders hired Centerview and Akin Gump Strauss Hauer & Feld
- May 30th, 2025: Fitch downgraded QVC again going from B- to CCC+.
- June 20th, 2025: QVC hired Roger Meltzer of DLA Piper and Carol Flaton to the board paying each $50K a month.
- August 7th, 2025: Earnings released and revenue further dissapointed. Revolver had $75M drawn in addition. It was also reported after earnings period company borrowed another $975M on the revolver bringing total borrowings to $2,900M.
- August 13th, 2025: QVC credit syndicate got 75% together and hired Simpson Thacher & Bartlett.
- August 15th, 2025: Company adjusted executive compensation which mirrors a KERP/KEIP plan.
- August 26th, 2025: S&P downgraded QVC from CCC+ to CCC.
We have the typical symptoms of chapter 11 (prepackaged or freefall). I of course could be wrong, but my ego doesn't care about that, so I only care about where I am likely to make money or not. Where I am likely to lose money or not. I think of a quote from Moneyball the movie where Brad Pitt as Billy Beane said "You get on base, we win. You don't, we lose. And I hate losing, Chavy. I hate it. I hate losing more than I even wanna win. And believe me, there’s a difference".
<< But they do matter! Even if earnings continue to decline, your job as a bank is to maximize recovery. Deliberately taking actions that harm recovery is dumb.>>
Right, and since the last credit agreement said bank(s) have watched EBITDA & cash flows drop and so far this year they have done ~$400M in EBITDA and on track for that FITCH low-end projection of $800-850M. At what point do the banks live the Kenny Rogers mantra and know when to fold 'em? Of course the tax considerations matter, but so does everything else and I promise you the survivability of the entity > tax shields. Has TJ calculated the tax impacts from just taking out such a huge portion of debt? Not talknig CODI but the fact $132.08M is gone in tax benefits that are not deducted anymore. This sword cuts both ways.
The banks have lent $2,900M to this client but they're going to be worried about taxes? Not at this stage.
<< I’m glad these people aren’t my tax consultants. The IRS would deem this a disguised transfer of ownership, forcing a deconsolidation, making all of the tax savings from consolidation get clawed back (with interest and penalties!) for all of the invalid consolidated years.>>
And the tax people are important, but that's probably why the company hired Evercore & Kirkland and the bonds hired their own firms and even the banks hired Simpson and Lazzard. The game changes in chapter 11 as well so....
<< Some people just cannot see past bad numbers. They’re incapable. To them, any recovery in QVC is impossible, because any return to stability or growth must be impossible based on recent trends. And this flaw is causing them to only see negative outcomes for equity owners in QVC Group.>>
Some people just ignore any numbers when they have massive positions in one company and need the numbers to swing there way too.
<< I don’t know how many times I’ve seen “models” showing QVC’s future earnings, and they’re just a continuation of the trend of the last few years. Maybe they teach that in finance class, but it’s a losing strategy in the long run.>>
No track record telling everyone else they're wrong? Wasn't he also just quoting Buffett and Lynch? Sigh....guess everyone is a fool! At some point the math has to support the analysis you can't just wave away bad numbers and state everyone else is wrong and they have no edge. Tiktok is the saving grace everyone states. The ATV is $40 right now and even if QVC got to 30K daily average (way, way up from the current 6-12K) this is a $438M business and at a 10% EBITDA margin adds $43.80M to EBITDA annually. This $438M is only 5% of QVC revenue last year so the rest needs to be coming from somewhere else and this $438M is 100% hypothetical as they're not even close to these numbers.
They have been on YouTubeTV, Roku, Sling, Pluto, and various others that I would consider the '80 out of the streaming platforms. Getting on a few more isn't likely to tilt their revenue picture. Happy to be wrong though!
<< The argument is really simple. When you have nearly $2 billion in cash, you don’t give away equity. You give away equity when you have no cash left for creditors. That clearly isn’t the case here.>>
They also don't have $2,000M in cash, they have $330M in cash which exists because they sold a ton of property and equipment, laid off people, and various other cost measures and then borrowed $975M from their banks after Q2 that they have to pay back at a current rate of 6.06%. It's not free money and the cost of that money is likely to increase which is never modeled by him.
They also technically gave the equity away when they pledged it to the bonds and banks when they took their money. And again good chunk of that $2,000M comes from the banks themselves so circular reference here because banks have first lien collateral to QVC, Inc equity and that $2,000M is mostly their own lent cash (75% of the QVC cash is from the banks).
<< Every time I mention the qualities of the business that are conducive to survival, the naysayers start talking about revenue declines. But the revenue declines are the noise, and the structural advantages that QVC still has are the signal.>>
Revenue is the noise. Right. What are customers willing to pay for that structural advantage of QVC? I suppose I am wrong for looking to much at the data?
Never mind I have been tracking existing customer counts just fine and my model(s) are lined up going back to 2023:
As for preferred holders suing, I just don't think it goes that route. They can as TJ said, but they have no standing which is why I personally never recommended buying QRTEP/QVCGP. Both had the same downside risk and the common at the time offered the better ROI if you bought it in the event Athens brought the turnaround. I wrote this about owning QVCGA vs. QVCGP in October of 2023.
The rest of his post is fighting for the spin-off with CBI and QVCGP. Given the problems really are not in either place I guess I must ask "who cares?".
I think my valuation post, LME post, game theory, and promissory note posts do enough to reason why I don't think the LME shoe will fit this Cinderella, but math isn't needed here I guess.
I hope it works for everyone, but again, "I hate losing, Chavy. I hate it. I hate losing more than I even wanna win. And believe me, there’s a difference". Investing can be funny and these boys can make out just fine as we have seen the equity pop I wrote could happen in a distressed debt, but for me, this screams of something else and not something solved by an LME.
Happy investing,
Sean |
