Anybody notice the 'fair value' number RAMR gives for the preferred? They show it at par on the balance sheet, but in the footnotes they value it at about twenty-five cents on the dollar.
What does that say about things like management's estimate of common book value on an intelligent, informed, insider basis; or about dilution in a preferred-common exchange?
I don't know why they need to do a r/s beyond embarrassment, but the r/s and name change sort of imply a repristination of the company, leave the embarrassing guaranty business behind and fling ourselves out onto the indeterminate sea of short-term, non-catastrophe prop/cas. The changes may be sufficient for policy marketing purposes. But if a capital raise is needed, a sort of follow-on that would look & feel like a de novo IPO, then maybe the difficulty presented by the fact of the preferreds will need to be addressed. But since the terms of the preferreds are on the weak side, it may well be that they can successfully be swapped for common on a non- or even anti-dilutive basis.
So I guess the question for me is how serious are they, and how able to pull it off without something more drastic for the balance sheet and book value, about venturing into new new-business waters?
Another activity that stockholders disdain is the issue of additional common stock, and RAMR seems to be on that track. Combining a reverse split with a stock offering is likely to be a real knockout for the stock price.
My intention is to short RAMR a couple days after the reverse split occurs, and I expect a 50% gain within a month. Once the stock price settles, which I anticipate will be in the range of $5, I plan to renew my long position. I continue to believe there's considerable value in RAMR.
I expect that Calliope will take enough of the new offering to maintain control but at a level of ownership that's slightly below 50%. That will avoid having to cash in the preferred. Once the offering is made, the value of the stock will be better established and it may be a great buy.
I completely agree with your assertions. A reverse split has no effect on the portion of the company owned. But that doesn't change the fact that shares generally fall after a reverse split. Please take a look at the first page of the research paper at the link below.
Reverse splits are normally accompanied by a drop in stock price within a month of the split. The authors attribute it to an undefined negative message; whereas, I attribute it to loss of the option premium. We both agree, but have different explanations for the effect. One way of looking at it may be this. Post reverse split, those investors that are attracted to the upside potential of a very low priced stock are likely to sell, and those interested in a higher priced stock will buy. The comparative rate at which the two groups act will determine the stock price in the short term of a couple months. I submit that those who are already in the stock will leave before the next group arrives.
Hi Guys; Am posting for the first time here.....
Agree with the statement that reverse splits don't always bode well for existing shareholders.
Don't know much as some of the other folks posting here but was wondering....
Let's say that Calliope was wanting to "take over" the company for cheap as suggested in the other posts. Its primary prize here would be the existing "reserves" that RAM holds. And these are of value only if RAM will not have any (or very limited)defaults in its current insured portfolio. The realization of this "value" will not happen until the current portfolio runs off or RAM "settles" (as it has in the past).
After this, it will have to settle with the preferred equity holders.
In a sense, the schedule for this above set of events is independant of whether it stays as RAM or it executes them as "American Overseas".
Also, the "new" capital it may raise will need to be legally shielded from RAM's previous obligations (else the new investors would not be putting their money in) - so, as a new investor, why go through this "restructuring"
instead of starting a new company or just investing in some other existing casualty/property insurer ?
So help me understand what would motivate Calliope to assume all these risks and complexities and put more money into RAM even at the assumed post split price of $5 per share?
If Calliope takes control of over 50% of the common, it may make preferred redeemable at face value. But if the company begins writing coverage as is clear they intend to do, they will have to begin paying dividends once again. So clearing out the preferred may not be that bad a thing, especially if the common is reduced in value by at least 50%. They may intend to offer common in exchange for the preferred, which I believe would be well received at a post split price of $5. And RAMR gets to keep the capital, which is a very good thing.
Right now, the vast majority of the non-Calliope common holders are speculators. I doubt that RAMR has much regard for such investors, and realize they will be gone as soon as the company is on its feet. Any thought that RAMR will go out of its way to protect common holders is probably one's imagination working overtime.
Although I no longer hold any RAMR, I want to watch the stock as a short opportunity. But I'll hold back until there's a firm date for the split.
The liabilities for existing insurance are conservatively stated, so actual liabilities are likely to be quite a bit less. Each quarter, exclusive of marks on unrealized liabilities, the company makes a fairly good profit from existing issued and paid insurance, and interest income on the assets. As a result, there are many ways the company could be reorganized that would conserve much greater value for existing shareholders.
In consideration of what typically happens with a reverse split, I interpret it as a strong indicaton that existing shareholders will receive very little. Although Calliope is a common stockholder, and will be treated like all the rest, their position as owner of at least 38% gives them virtually complete control.
I have to admit that I have liquidated my entire holding in RAMR. I began about two weeks ago, needing the money for another investment. However, this reverse split caused me to accelerate the process.
I had always expected RAMR to resume writing coverage, but was concerned that Calliope would find a way to take control without adequate compensation to existing stockholders. Well, I think I have my answer.
The reverse split reduces the number of shares to about 2.6 million, of which Calliope owns 38%. Once the split goes through, and the shares begin trading at $10 or so, they will lose the option value prop that is currently supporting the share price. I expect the shares to sell for $5 shortly after the split.
RAMR will need to raise fresh money in order to resume operations, and will sell common shares to do so. Calliope will probably be the main, perhaps sole, purchaser. I can easily see Calliope purchasing 20 million shares for $5 each, and will then hold 21 million of 22.6 million shares outstanding. The remaining shares could then be purchased with a tender at $5, or 50 cents pre-split.