At 20% I think the risk/reward isn't too bad. I'd like the change to review CCA's books but the occupancy numbers seem to be holding which is the key. If they had fallen into the 60-70% range I'd be very worried.
Sure the preferred will not have the bang the stock might have but the recovery rate will be much faster then the common especially with the amount of paper PZN is issuing in the coming months. The more paper they sell, the pref.A gets stronger and stronger.
If PZN gets thrown into BK it's still should not be a total loss as there should be enough assets to protect the value of the preferred mostly.
If the story works out in the long run, I'll have a 20% piece of paper year in and year out....I can live with that.
The chances of BK are a lot higher then I think people believe IMO. PZN has not been paid yet this year by it's ONLY tenant. And it's only tenant is in default of it's own loans too. PZN WOULD be bankrupt if it were not for this PL involvment. If PL backs out, PZN will file the next day, IMO. They don't have a choice.
The good news is the bankers can see the cash flow and occupancy has held together. If they file for BK, I think the bankers would be shooting themselves in the foot. Who will take over? Who do you sell these prisons to? Gov't's can't whip up money as quickly as privates. That means a LONG drawn out process as I see it if PZN files. I think in a normal situation we would of seen the bank group have less patience. But others here I'm sure have more knowledge than I on this subject.
I think we learn a lot in the up coming filing for the rights offering and the proxy for the CCA merger. I would have expected them out by now. The past numbers are so confusing and only half complete (CCA's numbers). CEO Beasley mentioned EBITDA(earnings before interest,taxes, deprec., amort.) of $39mm for the last quarter, but that still puts them at a loss as a C corp. PZn had interest expense of $32mm and a pref. dividend of $2mm so that leaves $5mm or so before non-cash items like depreciation, amort., etc. In other words they are about break even on paying out hard cash. I guess you could call that a start.
The $200mm should get the rest of the beds finished and give them some breathing more to focus on occupancy issues and expenses. They paid out soo much in fees to everyone under the sun, that alone would make a big differnce for next years numbers.
I own very little common but have been buying the pref. A lately as I think the common will be dead money for awhile.
I mentioned awhile ago I thought the chances of BK at 20%, I would increase that to 40% now. Since I feel if PL backs out a BK will be filed the following day. I don't sense there are any more outside investors that have stepped forward at this point besides PL. Most like to wait for BK and try to get the company for a song.
Of course just my humble opinion with a lot of guess work attached to it.
My average cost is about 10 and there was no benefit from buying early. The proxy should be out soon and it will include a fairness opinion and some financial projections. The last proxy included a forecast EBITDA over $600 million five years after the recap.
The company is not bleeding, but will find it very difficult to make operational improvements before the recap is funded.