The previous strong stock buy back of SFI combined with the current and future potential buy backs has me wondering. Why? I have asked this question before and Quad gave me a positive cause-effects on share price. And, I thank him for it.
But, why is Istar buying back it's stock in such large amounts (relatively speaking)? No doubt, they see it as a good "buy"? But, in the past, it has been pointed out there there are also balance sheet negatives of this cause-effect process. So, it begs the question(s):
Given the need to move from a "borrow their way" out of their liquidity problem to an equity investment solution, is the buy back a designed method of forcing up share price by greatly reducing supply which in turn will lead to a new stock issue? (need to catch my breath)....
I have no problem with the increased share price ;0). But...am I being paranoid :0(?
I am guessing onIstar's actions. A man named Jason with ISTAR told me, when stock was at $1.00. Management had three choices with delisting on NYSE.
1. reverse split ( studies show it does not work on keeping price up to prevent delisting.
2. share buy back. ( It helps get rid of shorts that have forced down stock price.)
3. do nothing ( stock most likly gets lower and delisted.
I think if Istar was delisted in option 3. price might be in the .$.30 to $.50 range.
Who wants to refi a delisted REIT.
I think the have made the best choice.
The stock is so unstable, Shorts run. traders tend to become very careful, like me.
The long term longs just stay.
de-listing is a an absolute 'no can do' for SFI - their latest bond offering - the $800 million in unsecured, convertible notes, has a clause: if the common shares cease to be listed on a major exchange, then the notes become immediately due and payable.
For this reason alone, they'll do whatever they have to do to keep SFI listed.
Tma, I have nothing against a new stock offering in future, when the price will be above book value.
There is nothing to worry about.
E.g. they have previously bought back 30M of common stock for $50M, and when the stock price will reach $30 per share, they will only have to issue 14M of common stock to raise $400M. After all, the total amount of shares outstanding will decrease by 16M (comparing to mid-2008), and the company will get $350M free cash.
The only negative balance sheet effect of buying back stock is to reduce TNW, an issue significantly obviated by the new facility and its relaxed TNW threshold. In the scheme of things the shares are so cheap and the amount of money allocated to buyback so small that I think this issue is now immaterial.
Given the enormous discount to book value the acquisition of shares immediately increases the book value per share of the remaining float. It has significant favorable impact on future earning per share and consequent impact on share price down the road.
I don't think buying shares is intended directly to juice share price and I doubt Sugarman wants to issue any dilutive equity in the near future. However, the smaller float sets up a much more favorable equity issuance possibility down the road - if and when needed and possible.
I wouldn't say they are "borrowing" their way out of debt. The new facility gives them flexibility to shrink their balance sheet, resolve their NPLs favorably and convert their loan receivables into cash. So I would characterize it as a tactical facility and not a strategic issue. The new $1Billion may well end up buying debt at a discount, which would have the effect of shrinking notional borrowing, not expanding it.
All in all I would suggest enjoying these felicitous circumstances - it may end up being quite a fun journey.
Sorry if I'm stating the obvious, but the reason to buy back shares is to maintain the equity PER SHARE as the company delevers. Even though the total equity decreased in 2008, the equity per share was maintained as the share count was decreased proportionately. Ultimately at the other side of the tunnel it is the equity per share and the ROE that will determine the dividend and share price. If they can create CODI in excess of credit losses while also decreasing share count, then the equity per share will go up, etc.