Leigh,
let's say I've been watching GUCO from afar. Never had the courage to buy into the senior bond side in a Chapter 11 deal, I like to identify promising post-Ch11 companies with some credentials.
First of all You deserve credit for Your warnings about the dangerous nature of the old-common stock (GUCOQ). Many people just don't get the difference, I know, though, how difficult those restrucuring deal are to read, so I can only tell everyone who is unsure to turn to the SEC-EDGAR database and read everything what is there.
Ok, enough of the string-orchestra, let me submit some questions:
1) Regarding productivity, GUCO is not in a bad situation compared to PUSH (Publix) and SWY (Safeway) which I think are the best "role models" in the grocery industry:
GUCO has 0,22 million, PUSH 0,20 million and SWY 0,25 million sales per normalized (i.e. full-time equivalent) employee. This means productivity is OK at GUCO, just margins are not (yet)
2) I know that Lehman has a "buy" rating out on GUCO, but It also know that Lehman is a major underwriter of GUCO's new $300 million revolving credit facility, so they at least are not hurting themselves. This at least puts the buy-rating in a different kind of context
3) Regarding tthe EBITDA, it reached $31.1m for the July quarter, that would be 4,6% of Sales. While this is a remarkable achievement, I wonder what can be expected on the future operating sheet performance:
3a) It should be noted that GUCO had a Chapter 11 deal in 1995. From then there was a balance sheet item, called "Amortization of Excess Company Value" or so, that was depreciated since then. Each quarter $32 million US-$ (I know it's paper money) had to be reserved for this. I'm not based in the US, nor I'm an accountant. What will happen to this item ?? Will it grow (because of the prepacked 2nd Chapter 11 deal that eliminates $600 million of debt) ?? Or will it be able to have it wiped out in one instance with fresh-start accounting ??
3b) Regarding Interest. While under Chapter 11 GUCO had to operate under quite costly DIP-facilities. Last quarter before the recapitalization, $32 million had to be assumed for interest payments. Balance sheet show 2 kinds of liabilities: Longterm debts and leases. I'm unfamiliar with the latter (leases). What's exactly that and what kind of interest is paid on it. Since Restructuring wipes away $600 million of debt, DIP financing of $200 million additionally that means that totally $800 million are off the table. You can net it with the new revolving credit agreeemt ($300 million), arriving at $500 million. This means that debt should go down from $1200 million to $700 million. Assume 11% interest You arrive at about $19 million per quarter. Do You agree with my calculations ??
3c) Any idea what would happen to depreciation ?? I feel that it can be reduced by the fresh start accounting but I'm not exactly sure how that can be done - no accountant !
So if my assumptions are correct -
- $19 million interest payments
- "Amortization of excess value" can be avoided after fresh-start accounting
- Amortization & depreciation goes down from $21m to $15m
then the statement of operations should show for next quarter:
Sales 518.910 100,00%
COG Sold -352.859 -66,04%
Gross profit 166.051 31,08%
Oper & Adm -134.917 -25,25%
Depr & Amort -17.000 -3,18%
Amort EXCS 0 0,00%
Interest -19.000 -3,56%
unusual items 0,00%
Net before ext -4.865 -0,91%
Extraord item 0,00%
Net -4.865 -0,91%
Accrued div 0 0,00%
Net applicable -4.865 -0,91%
EBITDA 31.135 5,83%
Shares out 10.000
EPS -0,49
This is a WORST CASE scenario - when current situation is just trended forward..
What's Your opinion on this ??
Especially with some measures taken to get BETTER MARGINS, this could be a compelling buy with a Price to Sales ratio of : 0,03 !
Perhaps a step was already taken: INSIGNIA POS (Point of sales) software is to be installed thruought GUCO (to handle promotions etc.)
What do You think GUCO can attain in terms of net margin of sales after taxes ??
best regards
CROSSY |
