I always considered FLY the best of breed amongst the dividend paying lessors. Since the huge dilution by the secondary at what I considered a ridiculously low price I had to reconsider the situation. I thought and stated that since management had always delivered by increasing shareholder value, we should withhold judgment until management was afforded the opportunity to explain the move. Some of we longs, myself included, expected that the company needed the extra $170 million to complete a huge purchase. Turns out that that was not the case. The companies explanation that the money was needed to fund their expansion plans for 2013 and 2014 does not hold water. Even if they spent $600 million in 2013 and an equal amount in 2014 for additional airplanes, they had ample available funds to do so w/o the dilutive secondary. It's obvious, at least to me, that the company wanted badly to increase the share count and was willing to give we longs a haircut to attain that goal.
How would you longs had liked had the company announced a fifty percent increase in the dividend instead of the secondary. The share price would probably gone from $17.20 to $18.50. This wouldn't have cost them any more than maintaining the dividend and not having to pay the additional shareholders. Suppose they followed this up by stating publicly that they intended to aggressively buy back shares on the open market until the share price was on par with book value. This could have driven the share price above $20 at which time they could have split the shares, two for one, raising the number of shares to 40 plus million. Management could have increased the share count and we longs would have been rewarded instead of being spanked.
Still a strong buy but just not quite as strong.
" It's obvious, at least to me, that the company wanted badly to increase the share count and was willing to give we longs a haircut to attain that goal. "
Unfortunately, this was the same conclusion I came to. Im not against a secondary offering. I would even be ok with divi cuts or suspensions if it delivered a greater value, but Im having a hard time getting my head around such a secondary to expand the float.
I posted this morning and went to the gym. Came back and saw that we opened sharply lower. I guess Mr Market wasn't impressed with the companies explanation either. To those that think the cash from the secondary was needed to fund future purchases, keep in mind that $150 million in cash on hand enables them to purchase $600 plus million worth of airplanes. I reiterate, this deal was done to increase share countand let the banksters earn. Who the heck prices the secondary at $14 and why did management agree to such a low price? Why not price the shares at $16 and let the banksters earn their commission coming up with buyers instead of fire saleing them? Not a good move for we longs.
I increased my holdings by 80% at $14.20, not a good move, thus far.
FLY has always been a shady company and should not be considered best of breed. I think they did the secondary to dilute the planes they have currently which are not performing as well as assets at current prices (as well as to grow the company which probably is something that is needed). You can hear on the call that they are having some trouble keeping all their planes out on lease so the current fleet is not going to provide high enough EPS. They said well lets just make the company 50% bigger and get all new assets. Why they did that right after saying that they didnt need to raise any capital - I dont know. The company is not a good long term buy and forget hold, but I bought in during the big dump on the secondary and I think I can make some money on it.
Mainman, i agree with you in one aspect, in that the SO diluted NBV per share. However the 777 and787 purchased cost about $400m, and to maintain a reasonable debt / equity ratio they had to make a SO.
So nice to see a pertinent post instead of the infantile garbage.
Merovingian- They stated that the six airplanes added to the portfolio cost them $333 million dollars. After these purchases they still had $139 million in free cash on hand. This figure did not include the $170 million raised on the secondary. with a three to one debt/equity they would be able to purchase an additional $560 million worth of airplanes . Their stated goal was to purchase $500-600 worth of airplanes this year. the free cash on hand was more than sufficient to fund theeal. I reiterate, the primary reason for the dilution was to increase the share count.
If you became a buyer in the $14 area you should be supportive of the deal because if it hadn't happened you would not have had the opportunity to buy in at that price. We long time longs have been had and don't appreciate the shafting. The promise of an increase in the dividend early in 2014 did little to remove the bad taste. As I stated earlier, I would have preferred the fifty % increase in the dividend today and the accompanying share price rise that would have accompanied it than the spanking we're getting now because of the dilutive secondary.
Sentiment: Strong Buy
Merv, as you'd imagine I would agree with MM38. If this is it, being just two aircraft... why in the world would sane management do a 35% dilution of shares at 70% or less of fair value? With the sale of the minority interest in the management company coupled with this move its a matter of #$%$ is going on. My concern is WHATS NEXT? What is the next rationally challenged thing for these people to do? And that is why I have downgraded them to a neutral.