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Alliance Semiconductor Corporation Message Board

  • bskptkl bskptkl Jan 17, 2008 10:59 AM Flag

    Weakness due to Ambac securities?

    59 million in these according to last 10Q.

    I think worst case scenario; ALSC ends up with ABK preferred stock, so credit risk of ABK a concern. I think ABK unlikely to put preferred to ALSC, but they must be losing 1-2% on these securities as commercial paper seems to be paying 4-4.5% and ALSC earning LIBOR+1 = 5.5%?

    Full disclosure: I sold my remaining 1/3 position today.

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    • Today's wallstreet journal article talks that bankruptcy speculation is over blown. At worst they have to make interest payments on the defaulted bonds and the bonds are not due for a long time.

    • How much debt is at the Ambac Assurance level? Assets vs. liabilities? Isn't there a ton of speculation that they've mismarked their liabilities and that the writedowns they have to take will completely wipe out the capital base?

    • "Could you point to a link where it is stated that the preferred is structurally senior to the parent company debt? Or at least that the preferred is directly attached to the Assurance sub?"

      From any Ambac's 10-Qs since the trusts came into existence:

      " Ambac Assurance has a series of perpetual put options on its own preferred stock. The counterparty to these put options are trusts established by a major investment bank. The trusts were created as a vehicle for providing capital support to Ambac Assurance by allowing Ambac Assurance to obtain immediate access to new capital at its sole discretion at any time through the exercise of the put option. If the put option were exercised, the preferred stock holdings of Ambac Assurance would give investors the rights of an equity investor in Ambac Assurance. Such rights are subordinate to insurance claims, as well as to the general unsecured creditors of Ambac Assurance."

      So the preferred will be issued by Ambac Assurance. In a liquidation of Ambac Insurance, the holders of the preferred will be entitled to a liquidation preference over Ambac Insurance's common stock in an amount equal to the principal amount of the preferred plus declared but unpaid dividends. If Ambac Financial were to default on a debt obligation, the debt holders would only be able to make a claim against Ambac Financial's assets, which include Ambac Assurance common stock, which (as stated above) is junior to the preferred.

    • Thanks. They have some contingencies and some "marketable securities" that are not detailed in the notes. I will probably wait for the 10K and then do some work.

    • Trollandtic is bascially assuming that ABK will put preferred to the trusts. From my understanding ABK will not do that as it will actually weaken ABK's ratings situation. I feel badly for those that panicked and sold today. This situation will work itself out, although it will take some time.

    • You may like KGHI; also around 75% of 36M cash. A former Bear Stearns guy controls it. He is supposedly looking for a deal.

    • I am including the $6 mm tax rebate in my ALSC numbers. CoSine trades at cash but traded to 1.4x cash last year without a deal. These entities "typically" trade at 1.2x until they announce a deal. Steel will be picky which is a good and bad since they own a huge piece of the company which they cannot "flip" and have other things on their plate. CLRS will be less picky and has come in since CEO launched a SPAC. They have $5 in cash and stock is at $5.85 but with $86 mm in cash they can do a bigger and better deal. I was in Aether (now NexCen) and made good money when they bought a licensing company (very profitable so good use of NOLs) and have done well in a number of SPACs. Shells and SPACs are far more attractive now that things are beaten up as the IPO window is closing especially for small, dicier companies and the credit market is contracting. They already have the cash in hand to improve the targets balance sheet and finance growth. I do not do liquidation plays, not enough upside in most cases. NCEH has no cash based on my quick check. Better prospects will come public through a shell with cash. ALSC was only "good" to those who got the dividend which was before management partially disclosed the pickle it is in.

    • do you im? I'm signed into yahoo im.

      I had CLRS on my watch list, but it is not cheap enough yet. COSN doesn't look cheap enough either imo, but I guess it is a bet on Steel (maybe they will buy more GY with the cash!) for whatever that is worth.

      Shells are a lot less attractive now that everything is beaten up, but I have owned several. NCEH for instance trades at about 75% of cash.

      I kind of like the liquidation plays rather than the shells. I have had good luck with REMC, LRT, CHRZ and others. ALSC was good to me too. But I'm not currently buying any of these.

    • You aren't counting the $6M tax refund?

      from 1/10/08 8K "In addition, Alliance expects to receive a tax refund for the 2001 tax year."

      from 7/6/07 8k "Alliance expects to receive a tax refund of up to approximately $6 million for the 2001 tax year as a result of the terms of settlement. "

    • Take a look at Ambac's last investor presentation. They list putting the preferred as an option and it is a lot less dilutive than issuing common at these levels since no new common shares would be issued. Your cash number is too high since Tower's stock is now at $1.13 representing $5.562 mm of value versus the $8.810 mm as of Sept. 30, assuming they did not sell any. I get $0.42 of real cash and Tower stock which includes the tax refund and the securities in Alliance Ventures that are included in assets held for sale and have a liability offset. The big issue here is that the securities are illiquid blocking them from doing a deal which is why I bought the stock to begin with. If you want a publicly-traded shell look at CoSine which has $2.28 in clean cash (trading at $2.33) and recent buying by its largest financial investor (Steel Partners) which has deep pockets to provide additional financing outside the $23 mmon CoSine's balance sheet. I have also been looking at Clarus but want to see the detail in the marketable securities in the K.

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