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Bon-Ton Stores Inc. Message Board

  • clanster1978 clanster1978 Dec 18, 2008 1:15 PM Flag

    Analysis - BONT is Bankrupt

    I'm not posting this message to frighten people, but rather to allow shareholders to save the little that is left of their investment. BONT is going bankrupt. Please do not respond with name calling, but reply with facts as I'm very open to hearing facts:

    1. There is no way that BONT hits their EBITDA expectation for 2008. There is seasonality to retail, but yr over yr EBITDA for BONT has fallen by 41% to 56% in the first 3 qtrs. The full yr guidance provided by mgmt implies Q408 EBITDA down 16% yr over yr to $143mm. As the economy (particularly auto & mfg in the areas served by BONT) has fallen off a cliff since Q4 began on Nov 1st there is no chance BONT comes even close to this.

    2. BONT's high yield debt trades at 14c on the dollar. In other words, the investors that are senior to the equity holders realize that BONT is going bankrupt. Anytime debt is trading sub 50c on the dollar implies that a company is headed for bankruptcy and reasonably soon.

    3. BONT's retail operations generate no EBIT. If BONT meet's the midpt of mgmt guidance of $180mm of EBITDA this implies negative EBIT for the retail operations. The company collects ~$90mm/yr of Other Income which is from HSBC and is 100% pre-tax profit. Given midpt for guidance of $180mm of EBITDA in 2008, ~$120mm of D&A, this means that EBIT will be ~$60mm. So the retailer has -$30mm of EBIT.

    4. Lets assume that full year EBITDA for BONT is $140mm (this is less than mgmt guidance, but still very optimistic). This puts BONT at 8.0x Debt/2008 EBITDA. Even with the recent run-up in Macy's stock, the value is 5.1x EV/2008E EBITDA. So the value of Macy's (a much better brand, much better management team, and a viable capital structure) is 5.1x inclusive of the market capitalization (EV = Mkt Cap + Debt - Cash).

    5. CIT cut off financing to BONT. While CIT itself may not be an issue, this will cause others that provide financing to BONT to ask themselves if they should be left holding the bag. CIT is a large player in this space and others that provide factoring are going to notice. No lender wants to be last out the door in this environment.
    6. The company will not speak with investors. This is very worrisome and a strong indication that the current quarter is progressing much worse than expected.

    7. Management is asleep at the switch. On their last conference call they talked about their "prudent balance sheet" and they're continuing to pay the dividend. Companies go bankrupt when management isn't fully grasping the reality of their situation. Speaking of bankruptcy, companies don't go bankrupt when they actually run out of money. They go bankrupt when it's obvious that they will never be able to fully pay their debts. This is becoming obvious for BONT.
    8. BONT needs to pay upfront to small vendors. My wife has her own apparel line. In the current environment she is requiring stores to pay cash on delivery (or she puts a hold on their credit cards) because she knows some of her stores will go bankrupt in the next few months. So BONT mgmt can say that they're supporting their small vendors, but the reality is that small vendors realize BONT may be in bankruptcy in 60-90 days and therefore they're demanding cash on delivery. There was a WSJ article about a month ago discussing this - small vendors are making sure the stores they sell to can pay them…not the other way around.

    Summary: I did own BONT a couple years ago when they bought Saks dept stores so I don't hate this company, but in hindsight they took on far too much debt and now need to declare bankruptcy to become a viable company. They're not the only retailer in this situation, but they're in the worst leverage position of any that I've seen. Q4 SSS, 2008 EBITDA, and the overall 2009 retail environmenet will be awful so there is no hope for BONT.

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    • this is a good thing.... they need recap... so they do a refi deal with a big bank.... who then pushes their stock having just made a bundle off the deal.... happens all the time....

    • One more bump for our new short friends who just discovered this message board.

    • Well with the credit facility extension announced today I think the original post definitely belongs in the Yahoo! Finance Message Board Hall of Shame. Such a terrible post.

      What do you think happened to the guy who posted this?

      • 1 Reply to brian.yango
      • Well I can tell you what happened to the guy who posted it. He did not make a dime. It was an opportunity. A missed opportunity and for many more naysayers like him. Not only did he not make a dime, he probably lost a lot of dimes because he probably shorted it too like so many more. I have said all a long. If you can survive in these tough economic times, you will thrive in better ones.

    • excellent post--I totally concur with your observations and opinion

    • Stock was $.65 on Aug 26 th 2009 and is $10.85 today. Question is now when will the price top out..and long term where will Bonton be?

    • nice. .. but i always question the "why" in relation to why someone would give us such great "free" information? Spend all that time to inform people you dont even know? In Wall street always always always question the messenger. Cramer,CNBC boobs, GS... im not saying your wrong poster. I just am suspicious of your motives.

    • So ....when is it going to happen????

      • 1 Reply to jerahks
      • It's much easier to know what will happen rather than when it will happen.

        If BONT posts horrific Q4 results in early March I think that bankruptcy is a first half of 2009 event. But I feel there is a fair chance that BONT stumbles along for a while longer.

        Absolute worst case is bankruptcy when the credit facility comes due March 2011 (sure that sounds far off, but only 2 years and 2 months) as there is no chance they'll get anywhere near the same credit facility. The interest expense for BONT is simply unbearable.

        I tend to invest in very good businesses so it's infrequent I follow a company like BONT (there are no barriers to entry, returns are horrible, there is far too much debt, despite 2008 being a difficult environment 2009 will certainly be worse, etc), but in the few situations I've followed that ended up in bankruptcy I was always surprised by the actual filing. I recall following steel companies 10 years ago where management stated that everything was fine in a CNBC interview and then a week later filed. It's the same situation here - we're just going to wake up and check the news one morning and see that BONT has gone under as the situation will unravel quickly (think of other recent bankruptcies-things fall apart in a few weeks as one person after another refuse to lend more money). Vendors/factors/etc will freak out at some point and pull the plug. I think there's a reasonable chance that happens in the next few months as Q408 results will not meet management guidance and BONT will subsequently end the year at 8x Debt/EBITDA (or higher) and the outlook for 2009 will only be further rising debt levels.

        I'd recommend shorting the stock, but the short borrow is very expensive (see some of my prior notes on this).

    • Everything you say is true, but I can't agree with your conclusion of a 2009 bankruptcy. In all likelihood, unless they really turn things around they will go bankrupt eventually. The likelihood of the current shareholders and bondholders being wiped out is very high.

      But the reality is that they have a very good line of credit in place and there is no chance that they could come out in a better position with a new DIP deal. They would never go into voluntary bankruptcy until they know they can't renew their line in 2011.

      On the flip side, why would the suppliers push them into Chapter 11. They like the BONT business and know that BONT will be able to pay them for the next 18-24 months at least. If 2009 is as bad as 2008, then I agree that in 2010 the suppliers may think twice about shipping.

      • 2 Replies to thinkingrational
      • Thanks for your thoughts on the timing of a bankruptcy.

        First off, I agree that BONT has a good line of credit and that management realizes that bankruptcy will be very tough for BONT. Hence, they're not going to voluntarily go into bankruptcy.

        But, I don't agree with your statement that vendors know that BONT will be able to pay them for the next 18-24 months. CIT just showed that it doesn't believe BONT will be able to pay. BONT has guided to Q408 EBITDA of more than $140mm, but it's going to take a miracle for BONT to have Q408 EBITDA anywhere close to $100mm. And 2009 will only be worse given the state of the economy. Therefore vendors and creditors will soon realize that BONT is not a viable business. End of the day, the interest expense is simply far too great for the potential profitability of BONT.

        I find that when a mgmt team is totally oblivious (as this mgmt team seems to be when discussing their "prudent balance sheet" or continuing to pay the dividend) is when vendors/creditors pull the plug quickly because they realize that the mgmt team isn't facing the reality of the situation and it will only result in greater destruction of value to postpone bankruptcy.

        Also the bonds are currently below 10 which implies that bond investors don't believe they'll receive a full year of interest -> hence a 2009 bankruptcy.

        Many smart value investors (such as Buffett) have noted that it's possible to know what will happen, but not when it will happen. BONT will go bankrupt (I think we both agree on this). And while I don't know the exact date, it seems likely that it will occur in the next few months.

      • looks like another big sales drop in december for bont. ! I bet mngt claims the weather hurt the business ( of course it is not is lack of top merchant skills). WAKE UP T.G. and make the move needed to get the stock price where it belongs. How long are we going to be stuck with a $1 stock?

    • you could not be more correct. although I question what the board is thinking when they continue to stand by the worst chief merchant in the country with Tony B! Rome is burning and he spits on it hoping it goes away. WAKE UP

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