If debt is squandered, it's bad debt. If it's
used to expand business with advantageous spread
between income and cost of capital, it's good debt. It
troubles me that the company plans to pay the "special
dividend" out of borrowings --smacks of an LBO. They can't
pay the special dividend until December -- that's
always made me suspicious, but I'm sure it's because I
don't understand the workings of high finance.
I did not say the proceeds would be used to build
more facilities, I said the opposite. Also, what do
you mean when you compare the property rights of
Russia with PZN. What does that mean? Is it me or do you
and lots of other people on these boards live in
alternate universes??? I can't decipher half of the
I will concede that the interest rate on the bonds
may be higher than the current bank loan. However,
with the uncertainty of interest rates going into the
future, it might be better to lock in a fixed rate now.
In fact, maybe the prospect of inflation coupled
with the pending bond issue is a factor in spooking
investors. With Treasury rates inching up, the market
probably expects PZN to have to pay a higher yield on the
bonds to attract buyers. If this is so, I'd rather lock
in rates now than risk escalating rates on
The company would not get the new debt unless
they thought the the return on capital would exceed
the cost of capital.
As for the stock drop, my
theory is that a company official told the analysts
something about the company that caused 3 of them to
downgrade PZN today. Somebody knew about the coming
downgrades beforehand and was dumping the stock on Thurs and
Friday ahead of the news of the downgrades. This sounds
an awful lot like insider trading to me. If there
are any securities lawyers please respond.
I guarantee that the interest rate on the bond
offering will be higher than the interest rate on the bank
You right however that the proceeds will eventually
be used to build more--they will redraw on bank
lines and that will be accretive unless they AGAIN
change the deal with OPCO and siphon off more
The reason investors demand such high returns in
areas such as Russia is there is no protection of
property rights. Sound familiar?
The Company has stated that it intends to use the
proceeds of the debt offering to pay down existing debt.
If PZN's stated intention is taken at face value, it
precludes the use of the funds for acquisitions or
construction of new facilities. Further, unless the terms of
the bond offering are worse than the current credit
line, it will not be dilutive to earnings! It may be
that the Company expects interest rates to
dramatically increase and has opted to switch from the
uncertainty of a variable rate to the certainty of a fixed
rate. A dilutive event can only occur when new equity
or debt is issued and the newly available capital is
not deployed wisely. In other words, if the cost of
the capital exceeds the return on capital, it is
dilutive to earnings. If the return on capital exceeds the
cost of capital, it is accretive to
If you understand the above and agree with my
analysis, please pass along the information. It is
important to get the correct facts out. Too many people are
passing along misinformation which only clouds the true
On the other hand, if other information has leaked
to special interests that the general public is
unaware of, that could be the real underlying cause for
the dramatic drop in stock price. I wouldn't rule it
That's my three cents (2 cents plus a little extra).
As of 3/99
Book Value...$11.30....and that
TAKES OUT the special dividend of $1.90/ share. So the
BV with the special dividend is
Cash paid out for the next 12 months...$2.20 + $1.88
of special dividends equals $4.08...assuming no
If this situation is "neutral"
I'll eat my hat (I might have to).
continue to feel there are boogy men in the closets. Litt
and Boston did there normal trashing today...citing
it appeared Mangement left out the bad news on
purpose in the 1st quarter....this sounds of
bulls***....sure management is going to want to let bad news out
RIGHT before their $300-$400MM dollar to make
everything go smoothly....NOT. I think Litt and Boston are
starting to go off the deep end.
I bought a lot of
shares today. It might continue to go down. I DON'T sell
REIT's that have 97% occupancy and more business then
they can write. Obviously others disagree.
Wall Street always assumes everyones a crook just
because many of them are. Conflicts are so abound in the
brokerage business it's disgusting. If you want Russian
Mobster type business...read the fine print of your local
brokerage firm "managed fund".....IMHO.
The market is overreacting not to the
fundamentals; they are excellent but to the possible dilution.
300 millions of fresh cash is going to be great for
growth, building more jails and renting them, but it will
also dilute the earnings. So how much does this 300
millions bond offering should knock off : my guess is
about $ 2.50 a share. Yep you heard right technically
pzn should at least trade at 17 the rest is panic,
overreaction, the market today, the downgrades, the feds
tomorrow. In my view we are in the middle of a perfect
storm and any signs of improvement will be very bullish
indeed. I would welcome any thoughts on this ...and I
could not resist a few at 14 3/4