SteveG:
My my. More insults. I really thought we'd gotten passed the name calling, but I see we still have a ways to go. Didn't we learn to play nice with the other children in kindergarten?
In retrospect, I'm amazed that you guys haven't seen a bear rationalization come along. Boy, with the reception given me, I'd recommend a whole heard of bears come prancing along. It's no wonder sites often represent cheerleading sessions. The alternative position is simply not allowed.
However, I must apologize for my own misstatement. SteveG, you are correct. Winstar does now have a billion dollars in the bank. I was working off a 4 month old 10-K, and sure enough, they have managed to coax 650 million more in exchange for their high yielding paper.
That said, I think the rest of you continue to miss the point. The fact that Winstar management has exchanged their IOUs for some of the US Government's doesn't really change the financial picture. It continues to show that this is a cash intensive business, and Winstar is spending money faster than they or the original investors ever conceived.
In short, it may buy Winstar some more time, but it continues to add to the interest cost. Tack on another 35 million in annual current interest expense, plus the deferred interest from the 11% deferred. Also, count on another 4 million shares of dilution, should the stock ever get to 49, in addition to the stock option dilution I mentioned in the last piece.
I could pick apart each little nuance of SteveG's post, complete with insults, and throw in a few of my own. But I like to think I'm above that. Instead, I think this might some up our differences.
Basically, I think the main point this thread keeps missing in their analysis is the confusion between "potential business" and value of common equity. Winstar does indeed have some value as a potential business. The value of wireless local loop is worth funding, at least to some degree. But, as most of you intuitively know, all securities are not valued equally.
The fact that institutions are snapping up the debt and convertible pieces of paper is a key piece of the story. It shows that it is very important for the institutions to stand in line in front of you. Most investors are willing to bet that Winstar's business will eventually throw off some cash flow. Enough to pay the junk level interest costs and probably return them their principle.
However, that's a far cry from what you get as the common stockholders. The exchanging of more debt for more cash doesn't change the position the stockholders are in. You still have negative net worth, no matter how many times you want to call me a nitwit. These are the facts. Before you jump all over me, I will be happy to provide a detailed explanation of these if you haven't followed my earlier explanations. Here goes:
1. You currently owe $500 million more than you have (in the bank or otherwise).
2. You currently owe $300 million in option grant compensation that has been noted but not accounted in any of the financial statements.
3. You are currently losing money at the rate of $250 million a year.
By the way, I did run a quick calculation of the Vogel numbers you so dearly love. My back of the envelope calculation is that based on these earnings estimates, and paying off the debt holders ten years from now, each share is worth about $20 a share, with a 20% discount rate. This of course is assuming Vogel's numbers are correct, including a 5 billion revenue stream five years from now. Hardly the screaming buy you claim it is.
I'd be happy to take you through the steps of my analysis, but I'm sure we'll progress into another tangent of name calling before this is possible.
Perhaps sometime in the future we can concentrate on relevant things, like why you're so confident in Wall Street's estimates. Who do you think is profiting from all this paper being sold to the public? Wall Street makes an underwriting profit on each dollar sold. For this reason, all assumptions, including my own, should be taken with a grain of salt.
But of course, this rarely happens in today's market. Buy, Buy, Buy.
Regards,
Jason Cogan |
