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Otelco, Inc. Message Board

  • rathebefishing23 Apr 8, 2013 4:14 PM Flag

    Chapter 11 monthly operational updates

    the first one is out. Its all cash flow based. Should be interesting to follow along.

    A couple of observations - simply annualizing capex gets us to a lower number than what was shown in the chapter 11 pro-forma. There are obvious problems with using 3 months of numbers to generalize the whole year, but its still something that we didnt have before. Restructuring expenses are shown to be ~$3M in that period, so the non-operating expenses are heavily front loaded in 2013 -could be more positive surprises in second half when they dont have to pay for those anymore. Taking those out and annualizing the FCF gets us to ~$13M for the year. I think the interest cash cost is for the pre-chapter 11 (higher) senior debt load, so that should go down by a good chunk after they emerge from chapter 11. BUT, the annualized interest cost is lower than that shown in chapter 11 filing pro forma... Maybe "interest expense" shown in the pro-forma from feb includes non-cash items? Not sure...

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    • Since acquiring Country Road, Otelco's average annual capital expenditures have been about $10M per year. The company is only budgeting $7M per year according to the disclosure statement.
      The $3M per quarter that is currently being spent on restructuring expenses will disappear. The disclosure statement indicates that amount (~$12M/year) will be used to reduce the balance of the credit line.
      I calculate that the maximum number of shares (Class A plus Class B) outstanding after the re-org will be ~18.2M. If management can perform to plan, that $12M translates into $.66/share of (not quite free) cash flow. If that happens we stockholders will be very happy.
      Also, the company has a powerful incentive to refinance the credit line as soon as possible. If done within a year the lenders will return all of the Class B shares, if done in the fourth year they keep them all.

      Sentiment: Strong Buy

    • Interesting stuff rather, although as we know, a one month period can be very lumpy. But you're right, its something we didn't have. Monthly snapshots are better than nothing.

      On a completely different subject, I don't know if anyone here has been following the activity of CI Investments. Not that long ago they were OTT's largest institutional holder. A year ago at this time CI held almost 1,300,000 OTT units. By the end of the 4th quarter 2012 they had lowered their stake to 682,000 units. Todays SEC filing reveals CI had unloaded another 200,000 units just in the month of January alone. Since this filing only includes data for the period ended 1/31/13, its quite possible that at their rate of disposing OTTunits that CI could be sold out already. Maybe not, but as of 1/31/13 CI was down to holding 481,494 units. My point is that with only 13.22M OTT units outstanding, when a seller of this magnitude is done, downside pressure on the units will be greatly reduced. And the window of opportunity for purchasing them at attractive prices will close also, IMO.