Novation "enormous amounts of debt".....Debt to Equity
This is one of the best responses a friend of mine gave to a miscreant basher in November of 2011 when queried about Novations senior debt;
Batmans comment about debt;
"enormous amounts of debt"
One professionals response;
"Batman, it's not the amount of debt that's important; it's the interest rate and repayment terms. Take the principal due from NFI at maturity and discount if back to p.v. at about 18 percent to determine the real amount of the liability. That result would be a better measure of the the current debt than the number now on NFI's balance sheet.
The capital structure of this little company could hardly be more favorable to common shareholders. That is, it's highly leveraged with a low interest rate and a maturity date that's so far in the future that it may be paid off in Monopoly money. In all candor, I don't understand how such a favorable deal was reached and that's what convinces me that the long-term plan may be to convert the senior debt to equity.
This is not a balance sheet story. It's all about cash flow and synergistic online financial services. While NFI is no sure thing and this could turn to #$%$ tomorrow, what about the upside? How about thinking about my first simple model from yesterday, but this time consider the probability of $2 or $3 per share in 6 to 18 months.
B'man, you should put away your firm's CFA manuals and think about what's really going on here. If you always invest in companies like PEP and WAG that may have a 20 percent upside, you're going to miss a lot of doubles and triples. And NFI could be far better than the baseball metaphor allows.
Investing in a manner that's primarily designed to avoid the embarrassment of a bad pick is no way to do it. That's what most equity managers do. You one of them?
Is NFI risky? You betcha. So why are Barry and Lance spending real money to accumulate the shares? Maybe they like the odds."