It's that time. Seems to me Q3 should show progress in watch list (if for no other reason than Soho disappearing), NPLs due to numerous resolutions, potentially decreased reserves due to those same resolutions, and perhaps significantly increased cash - give or take their aggressiveness in prepaying or buying back. Seems reasonable that it's a profitable quarter - it'll be interesting the see what if any level of share purchases occurred and how much debt was acquired.
Obviously a profitable quarter with reduced NPLs and reserves implies an increased TNW and rebuts a lot of the "down the drain" inevitability that's been flying about recently.
It could also redefine the prepack option as a mechanism to prevent a minority of debtholders from eviscerating value from a majority of stakeholders, simultaneously diminishing the likelihood of recalcitrants gaining from not playing ball and also buttressing the concept of preserved equity value through a prepack. In other words a good quarter diminishes the likelihood of a prepack and improves the outcome if it were to occur. I think at the CC we're likely to get a little more clarity about the prepack issues and what theory of equity preservation might attend it. That per se could be helpful.
So - I expect a good report this time. As usual I could be wrong about everything.
One thing I learned from ggp pre pack bankruptcy....the creditor is entitled to a max of 100 percent return! Thus if sfi is paying all interest , but can't pay balloons, the judge will extend the timeframe! That is a fact, and thus should not compromise common equity. The only issue is the legal cost of the process.
Let me note that the foundation of my repeated comments that iStar does not act weak is the fact that it has met all obligations, fundings and dividends in a timely manner. That, of course, is more than its customers have been able to do.
Having said that, if iStar either threatens or actually utilizes a prepack - which suggests that it has significant cooperation from its primary creditors - to the effect of preserving equity, extending maturities and enhancing future operating flexibility - I guess I'd say that's strength, as in muscle.
If they were giving up and contemplating a liquidation that would be another matter.
Remember a few CC's back Sugarman talking about the necessity of expert legal talent? I took that to mean collections, foreclosures, loan docs, etc. Perhaps that should be expanded to include hardball restructuring options.
So, I guess I'm in the camp that effectuating a cram down with super majority support of creditors to the benefit of shareholders is not weakness.
Good question, though.
Quad - Please don't take this as a slap because it's certainly not intended to be. You have repeatedly said that SFI is not acting as if it's a troubled company and now you are studying the potential impacts of pre-pack BK. Do you still believe SFI is acting from strength? AS far as I know there still remains no official confirmation of this scenario from SFI, so is this hardball tactics of a company still dealing from strangth or has this been enough to have you question your premise?
When you look at SFI's choices and decision points one thing reigns true. The preferreds will end up being toast!
OK, you can tick off the hedge funds that lent you a lot of money knowing that you will never be a borrower from them again and knowing that your cost of funds will go through the roof even if you come out the other end with a business model that can be executed upon. That would be the cram down.
I think in the end SFI will have to suspend the preferred dividends as part of any prepak BK and that will probably lead to some conversion of debt, and possibly preferred that toasts the common too.
Resolutions as I seem them:
NPLs (at 6/30)
855 6th Avenue: $125MMe Gross 37.5MM net
10 Rittenhouse: $15MMe Gross; $4.5MM net
Trump Soho: $20MM net
Jade Ocean: $2.5MM Gross; 0.75MM net
Paramount Bay: $4.2MM Gross; $1.26MM net
34 Leonard: $40.8MM net
College Park: $67.5MM Gross; $20.25MM net
REO (at 6/30)
Hue Condos $33 MM net
Grand Hotel Minn: $33 MM net
100 Eleventh Ave $47MM
Dividend Cap Mezz $106 MM
LNR Repayment $51.8MM
For Gross Cash of $512.8 and $362.86 net of Fremont
I am guessing other loan fundings are $120MM
LNR recap was $100MM
Trump Soho was $20 MM
and that there were sales and other repayments (that we can't see) of $200MM-$250MM
That would bring cash (before bond purchases) to $850-$900 million.
Assuming $150MM of bond purchases would put us at $700-$750 million
That's what I would expect.
Income statement should benefit from approx. $20MM gain from 855 6th Avenue and $4MM gain from 34 Leonard. I am guessing $15 MM gain from bond purchases.
Reserves are a jump ball. But we could likely take $50MM of provisions without impacting book due to the gains and some pre-provision income.
I'm guessing provisions come in at $60-80MM and there is a 10-30c loss.
Watchlist should shrink slightly as units at the Marquis, Trump Soho, and 10 Rittenhouse get sold.
I would consider such a quarter encouraging. It would reinforce the steady progress they are making while preserving the considerable book value.