As long as the current private debt is outstanding, the new deal prevents ALD from buying AFC.
ALD can buy the other public debt, but under pretty significant restrictions. It looks like ALD has to have over 100% of all obligations due in 6 months or 50% of all obligations due in 12 months on hand in cash at all times, whichever is greater. Since the first set of private notes is due 6/15/10 (within 12 months), ALD will have to wait until it accumulates half of their face, plus all other obligations due in 12 months. And it has to do it before 12/15/09, when the obligation goes to 100%. Check out 12.3 of the agreement - can be accessed through SEC on ALD's website.
The primary reason to buy AFC is balance sheet help. It is selling at the greatest discount to par, so it has the biggest gain on repurchase and the most help on the 200% statutory requirement issue.
I agree that the other debt is a better buy for ALD. Not only is due sooner, but the YTM is much higher so the return to ALD is mucher better.
Your point that it is not "cannot" buy AFC is wrong. ALD has agreed in the latest deal that it "cannot" buy AFC as long as the reissued notes are outstanding. It can buy the other public debt, but only under very special conditions.
Sometimes I think I am dealing with the slow reading group on this board. And y'all can get as surly as you want but you really need to pay better attention.
"Where is ALD going to get $1450m to pay down debt?" Let me explain. This company is gushing cash, about $250m per quarter and the portfolio companies are continuing to pay that according to the last quarterly report.That money used to go to paying the dividend but now it is available to pay down debt. The first quarter is probably shot because of the cost of the restructuring and maybe the remaining quarters are reduced by $50m each due to the higher interest rate but between now and the end of 2011 that leaves $2.25B of cash.
They did NOT say they will have no net operating income. What they said is they have none right now because of the "unrealized" depreciation writedowns they keep taking. And they said because of that they have no requirement to pay a dividend to maintain their BDC status. They also said because of their results this year they will not be required to pay a dividend next year. If they have net operating income in 2010 (because they stop taking writedowns) then they may need to pay a dividend sometime before the end of 2011.
Since they have all this cash coming in there is no need to fire sale any assets. If good deals occur, half of the proceeds go toward the private debt but that money is in addition to all the cash I mentioned earlier. And as quickly as they can pay down the debt, the quicker they can reestablish profitability and net operating income.
Lost in all this discussion is that ALD is in great shape from a cash standpoint and the reason for their "event of default" and need to restructure is all non cash nonsense created by the "unrealized" writedowns.
There will be no common dividend for the next two years, at least, but the company will survive and do just fine. That is why I have bought into the AFC issue, which is rated BB+ by S&P.
That's quite a difference between 36% and 9% don't you think? I'll just assume Clarabelle is your pet pig and you're putting lipstick on. Try Koolmagoo's ploy and explain you're a "retired financial executive" while your posts show a distaste for reality and any understanding of what you discuss.
Rocky, I dont know your background but I am a retired financial executive and I have gone to the ALD annual meetings for several years and listened to all of their conference calls. Let me distinguish between reported earnings and cash. Stop me if I am boring you.
Each quarter ALD runs each of their portfolio companies thru a model that places an "expected sales value" on them. If the economy is deteriorating the values are dropping and ALD takes a non cash charge called "unrealized depreciation" to drop the portfolio company's value on ALD's books. That non cash charge reduces ALD's net operating income and the writedowns have been so large recently that they have eliminated the net operating income altogether. But the cash from these portfolio companies is still rolling in. ALD has a chart in their CC presentation that shows the percent of their portfolio that is non performing (not paying) and it remains very low.
When they sell a company they see what they get as compared to what is on their books at that point and if they get more they reverse some of the unrealized depreciation and if they get less they take an additional charge called "realized depreciation".
But the net is that cash continues to pour in from their investments even though it is hidden by the non cash charges.
That is why I knew they would not go into BK, as some where afraid of. The banks did not want to force that because they have no interest in owning illiquid portfolio companies, especially since ALD continued to make all payments on their loans since they had plenty of cash. While ALD experienced an "event of default", due to the asset coverage covenant,they were never actually IN default on any of their loans so the banks had them as "performing". The banks raped ALD some in return for "giving" on the covenants but there was never any chance they would force ALD into BK. That is why ALD was able to behave so arrogantly with the banks. The banks have too many loans that are NOT performing and there was no reason for them to force trouble with loans that were current.
When the economy begins clearly improving, however, the process of evaluating the portfolio companies reverses and they begin taking "unrealized APPRECIATION", which adds income to the bottom line. The income improvement, when this happens, could be spectacular. That is when to get back into ALD.
I listened to the last call a couple times. The emphasis was deleveraging-deleveraging-deleveraging. It was to be accomplished by selling assets. That was the main take away - other than no income and the difficulties faced by its investments.
Your continued arguments that it is gushing cash continue to make no sense. How you read the 10Q? Please show where the cash comes from other than the sale and maturity of assets - liquidations! That is going to be the only place that cash can come from. The regular and reoccurring revenue will be more than offset by expenses. Last quarter the excess income was only $14MM which will go down as assets are sold. Of course, the losses and gains in the portfolio will go up and down with the market, but those are non-cash adjustments that hit the GAPP income statement but provide no ability to pay debt down. Debt reductions will come from asset sales, equity sales, and debt purchases at less than face.
THERE IS NO CASH OTHER THAN SELLING SOMETHING - EITHER FROM PORTFOLIO ASSETS OR NEW STOCK.
There was nothing in the 10Q or the conference call that indicates otherwise. Please show us where it is coming from if we are wrong. It will be in the 10Q.
All that said, I am a big believer that the ALD debt is still a compelling buy/hold. It will get paid back. The company will have to sell assets (and use 50% of the proceeds to buy back private debt)- just like it said in the conference call. It probably will sell equity. It will buy back public debt at a discount. All these things will allow it to refinance on better terms. The company will survive (if not prosper on the same scale as before).
Of course they have "cash flow." But it is not from income. I call it from "liquidation" - just like the company called it in its last conference call. It is mostly from sales, but it is also from scheduled maturities. But it is liquidation none the less. There will be less interest and dividend income, less interest payments, and less net income for the foreseeable future. Not that bad for debt holders, but a lot less upside for equity holders.
I can't refute the number, but the question is, how relevant is it given the writedowns that have occurred?
The operative words in the WSJ blog on your link are "at cost." "At Cost" includes the horrific investment in Ciena, which, I think, everybody not wearing a tinfoil hat has written down to nothing.
"At Cost" also obviously doesn't take into account the accumulated unrealized depreciation in the portfolio. Now, in theory they could write down/off the principal amount of every loan that goes non-performing in order to keep that percentage low, but the "income from operations" number can't be faked for the auditors; if you go back and look at either the 10-Q or Allied's Q2 press release, they break out the cash received from proceeds and maturities. And while it sucks that Allied made some bad/poor/untimely investments, the implication that all Allied's cash flow is from sales or liquidations is just false, and that was my original point. Ohhh, you say, "Allied's management is a bunch of criminals." Well, I wasn't long the stock at 25 or long the bonds at par.
Two other related points. S&P and the other raters have been behind the curve throughout "the crisis" at every turn, to the point, IMO, of damn near irrelevancy. Should everybody have run away or stayed away from the Allied public debt issues (when they were trading at twenty cents on the dollar) in the wake of S&P's downgrades? Perhaps not.
Also, the WSJ blog, as far as the "ballooning" of the non-accrual at cost, given when the Ciena writedown occurred, that's some wonderfully irresponsible journalism. I guess if it goes on a blog it doesn't have to be vetted by an editor or fact-checked.
Wish me luck tonight, Clarabelle's coming over, and she loves it when I apply makeup to her face.
http://blogs.wsj.com/privateequity/2009/09/01/allied-capitals-debt-restructuring-a-done-deal/?mod=yahoo_hs The end of this article they mention the deterioration of ALD's portfolio companies. But Koolmagoo knows different because he's a "retired financial executive"!!!