I noticed the stock way off today and recalled an
earlier news story about how badly the Euro is doing.
I've got to believe that sooner or later the weak Euro
is going to really hurt KC's Europe earnings. I
think the Euro is now about .86 to the US Dollar.
There's no way KC could have anticipated (and therefore
hedged) such a weak european currency. I think we'll see
the impact in Q3 earnings. Perhaps the decline (after
currency conversion) in Europe's earnings will be offset
somewhere else so overall KC may hit the number...but it's
going to be close.
Unfortunately I'm not well-informed. I just try
to make sense of what little information trickles
out on this Board and the occasional press release.
Unless you're close to the prison industry or a
financial professional you can't find out squat on PZN
until after the fact. Concerning occupancy, it was my
recent impression that PZN was making progress but you
are obviously much closer to that info than me so I
defer to you.
MK/Brendy, didn't mean to put
words in your mouths, was just sharing my impression of
where I thought you guys were coming from. Brendy, I'm
a bit surprised you don't have some risk capital in
this pig considering the grief that posters inevitably
take on the Board. Then again, I'm back.
CBRL worked out for you. Too much effort for the point
I made on that one. Sounds like you had the nads to
grab the 9 handle.
I've started working my way
into some of the non money-center banks with some nice
results. Take a look at UB. There could be another shoe to
drop but you're getting paid nicely to wait.
flipper and I engaged in an academic discussion
of liquidation but in my opinion, liquidation is not
something on the horizon for PZN. Liquidation is reserved
for companies who's busiess model doesn't work and
shows no promise. In PZN's case, the current liquidity
problems are due to what appears to be PAST occupancy
issues and the sorry state of the Balance
Occupancy seems to have been corrected, but the Balance
Sheet will continue to suffer the hangover from Doc's
deeds. Companies with proven business plans and negative
cash flow typically end up Reorganizing, not
Of course, from a shareholder's perspective, I've
maintained that either form of BR will yield the same to us,
The real question is, is PZN/CCA going to run out of
cash before they can get combined and get the
operations straightened out. I have no clue. I stopped
looking at the numbers six months ago and I'm not sure
there's enough transparacy now to make much of an
If I had to make a decision, I'd
probably take clues from MK or Brendy as they both not
only understand the financial side but seem to be
somewhat close to the industry. I'm trying to read between
the lines and I don't hear MK saying anything. I'm
guessing Brendy is betting on survival but categorizing
his investment as Highly Speculative.
There really shouldn't be any need for the gov't
to step in. If PZN were to file BR, it would be
chapter 11, reorganization. In short, they'd get DIP
financing and continue to operate without interruption. I
believe such a scenario would result in zero return the
both the common and preferred shareholders.
unfortunate situation we now have is that despite the bad
press, the "operations" are doing OK. They are a bit
behind the 8-ball because they weren't able to fill the
beds as quickly as forecasted. The real problem is
that doc's antics over the past 18 months have
virtually destroyed the Balance Sheet.
been so many payments to banking groups, Blackstone,
Investment Bankers as well as increased effective interest
rates (see Brendy's post) that profitability (and more
importantly cash flow) is almost becoming
The best operation in the world will fail if you load
on enough fees and interest payments. PZN is on the
edge, I believe. But that's only a gut call. I stopped
looking at the actual numbers when I sold at year-end.
If it would ever be a truly viable option to sell
ALL the prisons and expect significant value, then
why, somewhere along the line, didn't they sell a
couple of their prisons to help the capital crunch.
Selling 1 or 2 of the CA. prisons sure would have helped
More than anything else, the fact
that PZN never even attempted to sell one prison (that
we know of anyway) during their past (and current)
cash crunch confirmed for me that a liquidation option
is not really viable.
I never really left; I just quit posting. Anyway,
back to our discussion of liquidation values...I would
guess that in theory your numbers are sound. The
problem is that in a bankruptcy situation, logic and
sound business decisions are thrown out the window.
Once we've reached the point where PZN runs out of
cash and the banks have decided they aren't extending
additional credit, we're assuming (in this particular
discussion) they'd have a liquidation bankruptcy (chapter 7).
Isn't it possible, perhaps even likely that they'd
reorganize under chapter 11?
I still feel that a
liquidation BR would be handled very innefficiently by the
banks. At that point, they just want it over. Take the
write-off and move on. Understand that my argument cannot
be defended quantitatively. But I have sat on a
number of creditor's committees and watched those morons
You seem to be envisioning a process that is orderly
even if it takes several years to complete. Even if
you could sell off a prison every month or so you
never get the banks/bonds paid off in full because
their 10% and 12% interest charges continue to build
Hell, wouldn't surprise me to see an investment group
headed by Doc willing to pay the banks 50 cents on the
dollar for those mothballed prisons. Stranger things
No, I don't believe that in a liquidation
scenario the proceeds from asset sales would even cover
the bank debt, much less the bonds or Preferred
stock. I think the bank feels the same way, otherwise
they would have forced PZN into bankruptcy and
proceeded with asset sales.
I think the bank made
the difficult decision that it was smarter to invest
more money into the enterprise in hopes that they
would survive. The prisons have value only to the
extent that they generate cash flow.
they be sold? A few might be, but the short answer is
that there simply is no market for used prisons that
probably are not built to the required Federal/State specs
and are scattered randomly throughout the US. It
would take years to dispose of the few prisons that
might ever be sold.
Yes, in theory there is
great demand for these prisons. But that same theory
should have resulted in PZN's prisons never falling
below 90% occupancy.
I believe the only rational
way to play the common or preferred is to assume that
six months from now they'll either be at zero value
or 3x their present value and invest
To buy the preferred instead of the common because
there might be something left over after
liquidation...I just can't get there.
Per earlier posters, Dreman wants a completely
independent Board and outside professionals to run the
So, days after Dreman's pronouncement, Doc announces
his resignation from the Board and Brendy tells us
we'll probably have a new CEO in a month.
like Dreman's getting his wishes but we'll have to
wait a bit longer to confirm.
I viewed Dreman's statement
as merely jockeying for position. If Dreman had
determined that his investment decision was a bad one, he
would begin to quietly liquidate the holding, not bash
it in public. Instead, I think he holds out hope for
PZN and appears to not be shy about utilizing a
public forum to influence PZN management.
I agree with your assessment of Wayne's Squawk
Box appearance. I bought in the 40's after P&G's
previous blow-up but sold (too early) in the low 50's.
Hoping for pull back to the low 50's but it doesn't
Seems like the very weak euro
should really be hurting earnings out of Europe but
perhaps they are hedged or "making it up elsewhere". Good
off on the common. If a potential investor is
itching to get involved now, believes that ultimately
things will work out and doesn't want to mess with the
rights offering, why not just buy the Preferred today at
$8 for a 25% yield?
I'm not doing anything
right now but if I was I'd buy the Preferred. If a
person doesn't think the Preferred is a fantastic buy at
$8 then they should run from the common.
I completely agree with the most important part
of your point which is that offering Preferred is
the best way to go.
I agree that there is no
guessing the stock price. Heck, at one point today PZN
lost about 1/3 of it's value for probably no real
I'm more concerned about the yield on the existing
Preferred. That's a bit scary.
I agree that issuing Preferred probably makes the
most sense, but that's because it's their only
However, the balance of your
analysis is incorrect because you neglect to include the
"ex-dividend" effect on the common. I'll try to briefly
explain, but if I've got it wrong I'd certainly appreciate
someone helping...First of all I'm in a marginal bracket
of about 46% including State, so effectively from a
$2.20 Preferred issuance I receive after-tax value of
$1.19. Then, given the way the current Preferred is
trading, you could cut my $1.19 in half again after the
market puts a true value on it. So I got taxed on $2.20
and might own something worth $.60.
the part I think you missed...You have to own the
Common to get the Preferred. Once the ex-dividend date
hits, the Common should theoretically trade down.
Theoretically it will reduce by whatever real value the
Preferred is worth. If we agree the $2.20 Preferred is
worth $1.20, then the Common MIGHT trade down by
So net-net, my common went down $1.20 and I got
preferred worth less than that.
I'm not suggesting
that any of my specific numbers are correct. I'm
simply trying to outline the concept.
are no free lunches. If the Preferred is really worth
something, then the common's value will reduce accordingly.
If the Preferred isn't worth much, then you're not
really getting much.
Almost every company that goes BR does so because
they've run out of cash. The banks (or whomever is
financing them) finally just throws in the towel and
attempts to recover x cents on the dollar. It doesn't
matter if they're a leader, if there's equity there, or
anything else. When there's no cash in the checking
account you can't pay the bills. Ultimately either your
lenders or unsecured creditors will push you into BR once
their payments are far enough behind.
primary expenses are interest and salary. If PZN begins
having trouble making payroll, the game will end
quickly. More likely would be defaults on
IMO, it's all about timing. A combined PZN/OPCO makes
economic sense assuming occupancy gets better. The real
challenge is surviving the next 2 to 3 months. The BOD
needs to pick a Partner and get the ball rolling on the
financial engineering before we run out of cash or access
I continue to believe PZN Won't go
into BR because nobody benefits. However, the banks
will only stretch so far.
Of particular concern
to me is PL's plan to retain REIT status by paying
the dividend in Preferred Stock. As MK alluded to
before, what's going to happen to a $2.20 valued
Preferred stock (that is fully taxable to shareholders)
while the existing preferred is yielding 22.2% as I
write this? I'm not suggested this isn't the best
option but even so, it's beginning to stink. I sure
don't want to pay 46% taxes on a $2.20 dividend and
then have that preferred stock immediately be worth
less than $1.
As a potential investor, I find
myself doing what MK suggested others will do. Waiting
and watching with the plan being to possibly buy into
the story AFTER the plan is enacted.
My guess is they'll make it but the stock price
probably hasn't seen it's lows. They won't file BR because
nobody wins (nobody includes: Doc, PZN, CCA, Banks,
Bondholders and Customers). The price will probably drift
lower over concerns flipper discussed (rights, shorts,
etc.). Again, just a guess as I don't follow closely
so (fortunately)I wasn't able to follow through
on my plan to buy more FLO at $14. Looks like not
much has changed. KBL stock price seems to still be
the driver with FLO being the unwilling
My Food Stock Portfolio (watch only!) recovered
nicely and is now back in the tank. IBP made a nice move
but retreated. SLE shot themselves in the foot again.
Gotta figure out that lysteria thing. Dean Foods
misses, Campbells misses. Conagra hits the number and
sells off. Still messy out there.