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

To: smaycs4 who wrote (50558)	1/11/2013 8:25:57 AM
From: Stavisky	1 Recommendation Respond to of 78615

If you don't like to sign up for a trial memberships, the write-up is below. The VIC's write-up is more detailed and I believe the author is someone else, therefore it's interesting to note as they come to the same price-target range. Full link: distresseddebtinvestorsclub.com Equity or Bond Ticker: STRZQ Company Name: Stars Buffet Type of Idea: Post Reorg Equities Member: stockton12 Date: 11/20/2012 01:18 am Synopsis: Star Buffets, Inc. (“STAR”) is a publically traded restaurant holding company currently, trading OTC on the pink sheets after filing for Ch. 11 bankruptcy in September 2011. STAR currently has a market cap of USD 4 million. STAR filed for bankruptcy not because it was insolvent, but because of liquidity issues stemming from an aggressive expansion plan and a period of easy credit and refinancing options which came to a halt in 2009/2010. Since filling for Ch.11, STAR and its portfolio of restaurants have been performing well and are on pace to generate USD ~3.5 million in EBITDA for FY2012. In addition, STAR holds roughly USD 11 million in equity in its real estate holdings (restaurants owned). Most importantly, partly due to material insider ownership and related party loans, STAR’s reorganization plan leaves the equity holder class intact. Some impaired creditor classes have objected to this plan, but with the secured lender, Wells Fargo (“WFC”) via a USD 8 million term loan, on board as an the most senior impaired accepting class (i.e. the fulcrum security), it seems very likely that the subordinated creditors holding out will be “crammed down” and the reorganization plan will be approved. Should this prove true, when STAR emerges from bankruptcy following a December 2012 confirmation in Arizona Bankruptcy Court, the equity class will be a classic “Orphan Equity”, unloved or ignored by all Wall Street analysts covering the restaurant / buffet sector. However, with strong fundamentals intact and a revamped balance sheet, STAR should re-rate favourably with an EBITDA multiple per the industry average. Assuming a multiple of 5.5x EBITDA, I am looking at a price target in the range $5-$7 6 months to a year following emergence from bankruptcy. Write-Up: Background: STAR is a publically traded restaurant holding company. It has total of 20 wholly owned independently capitalized subsidiaries. Through these subs, STAR operates a broadly diversified portfolio of well-established, moderately priced and family-oriented restaurants in the South-eastern and Western United States. Having visited one of Star’s most famous subsidiaries in Denver, Colorado – Casa Bonita [http://www.casabonitadenver.com/] – I can personally vouch for the business model and quality of the restaurants in Star’s portfolio; the Mexican food would have garnered the plaudits of native Mexicans as well. Restaurants in Texas, Arizona and Florida are also strong performers for STAR. Despite a strong cash-flowing restaurant business, STAR filed for bankruptcy protection under Ch. 11 on 29 Sept 2011 to restructure operations. The bankruptcy was brought on not because STAR was insolvent but because it was illiquid and was facing a chunky / material refinancing which proved challenging due to market conditions. The large repayment was a USD 8 million term loan from WFC, which was actually a refinancing of an earlier term loan from Marshall & Isley. In addition, STAR faced litigation from a few subordinated creditors over past and future rents which amounted to $723,498.02, which was an annoyance, but not STAR’s main problem. These are clearly irrational creditors, and they will not have much credibility and/or leverage in reorganization plan discussions. How they could force a profitable company into bankruptcy and threaten nearly 1,100 jobs over such a small amount is perplexing. Nonetheless, while the failure to settle this payment was what pushed STAR into bankruptcy, the true motivation was to restructure and try to renegotiate its term loan. With the WFC maturity approaching on 31 January 2012, and realizing repayment and / or refinancing was not an option, STAR elected to file for Ch.11 and restructure while keeping key restaurants open and operational, such as the aforementioned jewel in the crown, Casa Bonita Denver. On 26 March 2012, STAR submitted a plan of reorganization to the US Bankruptcy Court – District of Arizona. The confirmation hearing took place on 22 October 2012 with one creditor class objecting. As such, the hearing was pushed back to 13 December 2012.