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

To: smaycs4 who wrote (50411)	12/20/2012 11:52:15 AM
From: PizzaSalt	Respond to of 78603

OK here is some more analysis on Star Buffet, which I highly advise you all to read. Estimating the “uses of value” is a little more straightforward. The only real estimates to be made are in quantifying the admin/priority tax claims and the actual amount of the unsecured claims pool that is likely to be allowed. The other obligations are the revolver, term loan, mortgage debt and unsecured note listed in the capital structure above. I was told by the attorneys that Star is fairly current in its payment of professional fees. And, since bankruptcy is seemingly run solely for the benefit of lawyers and bankers, their fees get paid before anyone else does. Because these invoices are generally prepared/submitted with lag time of a few months, it is my estimate that the unpaid priority/admin claims should total no more than $100,000-$200,000 as of the effective date. The IRS has submitted a tax claim in the amount of $2.4 million. I can’t get much color on this claim, other than that it will be paid over a 4+ year period, while the admin fees will be paid on the effective date. However, the IRS is no different than other creditors and often submits a claim in excess of what it actually is owed and ends up getting. But, since I can’t truly quantify what this claim actually may end up being, to be conservative I will count the entirety of the claim as a “use” and cap the “priority/admin” bucket at $2.5 million. The possible risks to this analysis are threefold: 1) The real estate does not get sold ever or gets sold for significantly less than asking price. I don’t believe there is a risk of the real estate never getting sold, since the court will likely set milestones for creditors to actually get paid. We also know that everything can get sold if the price is right. I think that conservatively valuing all of the assets being marketed for 85% of list price mitigates that issue fairly well. 2) The 25-27 restaurants being operated by Star post Chapter 11 are not worth $18 million. My analysis is above so I will not repeat it here. However, the Company is projecting somewhere in the neighborhood of $3-3.5 million of 2013 EBITDA- I use $3 million for my analysis. I don’t see the lower end of the casual dining industry falling off a cliff again like it did in 2008. All signs point to continued stabilization and low to moderate growth. 3) The unsecured claims pool is actually greater than $2.3 million. I think it is more likely that the final allowed unsecured number comes in lower than $2.3 million for the reasons espoused above, but there is a chance it comes in higher. For reference, if it were to double and actually be a pool of $4.6 million, the estimated equity value would drop to $3.45, still a significant premium to today’s market price.