Mr. Pink's Picks: selected event-driven value investments Message Board

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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments

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To: Joe Hoek who wrote (2508)	9/2/1998 3:15:00 PM
From: Mr. Pink	Read Replies (6) of 18998

New TF Sell Short Recommendation: FP First Plus 26 3/8 Mr. Pink has established a significant short position in this specialty finance company. Investment Conclusion: In an apparent act of desperation First Plus announced that it had retained investment bankers and is seeking the sale of the company. Mr. Pink believes the reason for doing so is that the company lacks liquidity to continue as a going concern. The securitization market upon which the company is reliant has all but dried up and the company will not be able to continue its business with out such access to the capital markets. In addition, the company generates significant negative cash flow and shows profits only due to the use of controversial gain on sale accounting. Furthermore the company's balance sheet is like a toxic waste dump of Interest Only strips, "B pieces" of financings, mysterious "other assets". Remember when Conseco bot Greentree, they took 600mm of losses as a charge. So what's the bull story? Basically numb nut analysts compare this to the acquisition of Money Store or Greentree. Those deal went for 4X book and aroud 12--14x forward earnings. Mr. pink thinks the possibility of a similar transacion here is remote. The market for gimicky finance companies was higher in those carefree days. Where do you think a bank stock would trade if they announced the purchase of this TurdX3. What's the downside? If there is someone stupid enough to bid a rumored 40 bucks a share, their stock would immediatly drop 10% on the bad news effectively making the deal 36 bucks. FP would trade at about a 15% discount or 30--31 bucks so your risk with about a 5% possibility by Mr. Pink's estimate is a loss of $5.00 up. On the other hand the landscape is littered with 2nd and 3rd rate specialty finance companies that have gone to zero or are heading there. GACC, RACC, CPPS, Olympic Financial, UC, SFC, AMES, Cityscape, OCN and many others have all dropped precipitously since announcing their intention to sell. Only MONE and Greentree have been sold. You do the math. Mr. Pink has high confidence in the outcome but remember, shorting is a risky game and there is a chance (althought small of a knuckle head bid.) Mr. Pink

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