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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: peter michaelson who wrote (30904)	5/9/2008 3:29:29 PM
From: Jurgis Bekepuris	Respond to of 78648

Both of them would still be viable cash-cow businesses if they were not saddled with 10B debt each... Oh well, was a good short for someone smart. ;)

To: peter michaelson who wrote (30904)	5/10/2008 11:14:37 AM
From: RockyBalboa	Read Replies (1) \| Respond to of 78648

peter: the reason why IAR and RHD traded at lofty levels for a long time is after the fact a simple one, the magnitude of the correction in credit markets. What was 1 before is now 0 and not some 0.9 or so. If RHD was viewed being much more riskier beforehand its stock would not have traded $70 and its bond at par. The current credit crisis was in its depth and duration impossible to spot; even as last as September 2007 the world seemed besides a few gaping holes in subprime and other RMBS, in order. It was not before this time money market funds auction securities crashed along with ordinary corporate debt. Once more I cite my Alt A and Option ARM bonanza, IMB (as well as CFC). While signals were deeply red for 9 months IMB traded relatively stable at prices from $20 to $25. It appeared as a value stock earning $2 or more in a good year. Only in November the real big fall came when it crashed from $21 to $5 in one quarter. That was when people gave up on stocks which seemeed nowhere to go before. I see that particularly in RH Donelly, the fundamendals are not that bad in a quarter, aside from its monstrous debt levels. In the preceeding good times RHD did not try to pay back some debt by issuing stock (at $50 to 60 a secondary would have made sense) or look to be aquired. The RHD common stock price appears to be a good proxy for credit defaults, once more. When it was at 60 to 80 it was fully valued. In the latter half year when the street decided to pull the plug, the bet is now more like, zero valued. Now with the business at least not growing it has little "exterior" value to show while the debt stays the same. Combine that with . competitive pressures in their revenues . creeping inflation on the cost side . debt not going away but essentially becoming more costly as maturities approach they are either a cheap aquisition target or see a restructuring. Their income is too low to sustain the amount of debt they carry around. RHD creation: RHD was formed on February 6, 1973 as a Delaware corporation. In November 1996, the Company then known as The Dun & Bradstreet Corporation separated through a spin-off into three separate public companies: The Dun and Bradstreet Corporation, ACNielsen Corporation, and Cognizant Corporation. In June 1998, The Dun & Bradstreet Corporation separated through a spin-off into two separate public companies: R.H. Donnelley Corporation (formerly The Dun & Bradstreet Corporation) and a new company that changed its name to The Dun & Bradstreet Corporation (“D&B”). RHD does not have significant bonds coming due before 2013, but they rely heavily on bank debt: 3.7B are in various credit facilities which must be extended 2010 and are subject to certain covenants. Nearly the same applies for IAR: its most significant debt is a bond maturing 2016. The most important catalyst comes from the unhealthy quick ratio; and low cash on hand so that a failure to pay interest on outstanding debt can occur anytime. In that regard both are weak but IAR got much worse in Q1 08 compared to preceeding quarters.