The formula was ... higher of
1. 80% of NAV on expiration date of 10/30 .... .80 * 14.52 = $11.62
2. 95% * Volume weighted average of closing price on expiration date + 4 proceeding days. That weighted average was $11.75. So, price under this formula was 95% of $11.75 = $11.16
Offering placed at higher of $11.62 or $11.16 .... $11.62
As I indicated, a #$%$ person wrote the press release.
I was an idiot. I participated in the offering. Only for a very small number of shares though. It kept me motivated to track the results. Based on how they priced it, I knew it was a busted deal right out of the gate. But, I have traded these often and track every one I can to understand the trading patterns. The last couple have killed my P&L though. So, I'm not an expert. Still, I'm intrigued with them given the number of different angles one can trade them depending on how they are structured. This one was structured by a mentally challenged idiot. I suspect that's why they're having so much trouble getting shares allocated. Behind the scenes of this deal, chaos probably reins. This is the most poorly managed closed-end rights offering I have ever witnessed. And, I've tracked and traded more than I have fingers and toes to count with.
The fund manger CFO needs to be fired, along with everyone else who touched this botched offering.
"Shares will be issued promptly after completion and receipt of all shareholder payments, expected to occur on or about November 6, 2015."
Here we are on Tuesday evening, November 11 ... and stock has STILL not been allocated, leaving us flapping in the wind.
CLOWNS. IDIOTIC CLOWNS.
What's up with the terrible performance of this fund? NAV down almost 10% for the year, while overall mkt at breakeven. They've been sitting on a pile of cash throughout this last month while the market has surged 9% or so. No excuses for such poor performance.
They botched the formula for pricing the offering. As a result, they only raised a fraction of what should have been raised if it was priced correctly. Why is this important? It's important because they opened a window and threw the offering administrative costs away. This was our money they spent on this inefficient, ineffective offering.
Not only have they proven themselves complete clowns in executing on an offering, they royally botched the press release about the results. This press release is among the very most confusing I have ever read in regards to the results of a CEF offering. The actual offering price was $11.62. But, to read the release, you would think it was $11.75.
Honest to gosh, there are complete and utter idiots running this fund. Run, don't walk, to the nearest exit.
Is there a reason this fund is under performing what a 3 year old can do? How much do they pay the idiot fund managers? I'd like their job. I could throw darts at a board and do better. Or, I'd collect their salary, subcontract the stock selection out to a monkey and still beat the pants off these clowns. I'd bet that Trump's hairpiece could even do a better job at stock selection. If not, there's a big rock out in my backyard that could outperform. Heck, these clowns should come over to my house at midnight and get stock tips from the possum that digs through my trash cans. They couldn't do any worse, that's for sure.
Honestly, why are the people who manage this fund actually employed?
I still think the June Q comes up goose egg in the divy. Maybe a couple pennies at best. Still, it's going to get bad around here. The stock will fall into the $3s at some point over the next couple months.
Since purchasing Harris Teeter, KR has absolutely destroyed it, turning Harris Teeter into a low end pile of garbage. What used to be a high end shopping experience at HT is now anything but:
1. It's obvious they have drastically cut back the labor costs/hours and it shows, everywhere.
2. HT stores used to be kept so clean you could eat off the floor. Now? The floors are so dirty, all the time, that it creeps me out. It's just plain disgusting. The self check-out lanes are the worst. There is so much grime, dirt, filth on the scanners, all the time, that it makes me wonder what disease I am taking home with the food.
3. The isles used to wide, clear, made for easy flow and relaxed shopping experience. They have now crammed the entire store with displays, everywhere. You simply can not maneuver easily. If you're into bumper cars, HT is now the place to go.
4. The specials used to be on staples, frequently used items. Now? They only cut price on junk that you hardly ever purchase.
5. HT had a thriving email "VIC" program. Every week I'd find good prices on items I needed. Now? Again, just junk items. So much so that I can't recall anything I've bought off a VIC email in months.
6. The old employees, who had been there forever, are now gone. They've been replaced by younger, lesser paid people .... who just do not care.
7. Most of the printed signs in the store have been replaced with Kroger signs ... destroying the HT feel the stores had.
HT is now a disgusting, low-end shopping experience. I now shop more elsewhere, as do most of my neighbors. I suspect the financial results will soon reflect this fact.
KR is NOT skilled at consolidation and acquisitions. I know this from first hand experience. If you think otherwise, you are a fool.
Two quarters ago they had a $1 M cash reserve. Now ? Zero, Zilch, Nada, Nothing, Goose Egg. They used $500 K in each of the last two Qs to support dividend payment. You cranked that into your guesswork, yes?
You can buy the stock today for $17.95. That makes each right worth only .25. [17.95 - 17.20 offering / 3 rights per share]. Which means that every single right sold during the offering period is way underwater. The vast majority of the rights sold for between .46 and .52. They've lost 50% on that investment.
Seriously ... just who were these idiots that so grossly overpaid for the rights?
The rights closed at .45 each the last day of trading. The overwhelming majority of rights buyers paid more than .45 each over the offering period. What did they wind up paying for INF?
Well, it looks like the offering got priced off NAV, because 78% of the closing NAV on 5/22 was higher than 90% of the avg of last 5 days closing price. 17.20 greater than 16.84.
17.20 + .45 each for 3 rights = 18.55 per share.
So, rights buyers largely paid MORE than 18.55 per share. The sad thing about that? You could buy INF for less than 18.55 all day long the last 2 days of trading. Would you rather buy rights and have to wait a full week before you get the stock, or buy the stock cheaper and have the flexibility to sell if needed at any time this week? Looks like most people did the stupid thing.
Why? Why were the rights buyers so dumb? Is there something I don't see? Or, am I the only one who can follow a closed-end fund rights offering and know whether it's better to buy the rights, or buy the stock?
There are people out there paying more for the rights to get into INF, than they would pay to just go into the market and buy the stock outright. Stupid people are trading these rights. They don't get it yet that this deal will wind up being priced at 78% of NAV, not the avg of the last 5 trading days. Do your homework people.
40 cents per right *3 rights + 17.32 offering price based on 78% of NAV = $18.52.
Then, push the pencil around to determine the diluted NAV post offering and you get about $20.87.
Pay $18.52 on a $20.87 NAV and you get about 11.3% discount to NAV .... overvalued ... relative to similar closed-end funds like UTF, which sell at 12.5 - 13.5% discount to NAV.
Fair value in the rights? about 30 - 32 cents. If you're buying them now, you're overpaying. Pure and simple.
Although I'm a CPA, that doesn't mean squat as it pertains to ROC issues in MLPs. My eyes glaze over just as easily as the next guy. And, I'd pull my hair out trying to understand this complex mess, if it hadn't all fallen out already.
Thanks, I see that issue now in the FEI annual report. I like much better how CEN presents it though. CEN shows the incoming ROC as income in the Statement of Operations, then, just as quickly, nets it out. At least the number gets visibility and not buried in some footnote.
So, with CEN:
ROC + Net Investment Income = $15 M
Cap Gains + options strategy = $15 M more
Distributions = $20 M
But with FEI:
ROC + Net Investment Income = $46.5 M
Cap Gains + options strategy = $30 M
Distributions = $60 M
They both look about equal to me in coverage on sourcing their dividend payments. Payments off their investments + Gains Booked is greater than distributions out to shareholders. CEN has more comfort there than FEI, but nothing to write home about.
The second thing I always look at with closed-ends is how much cushion they have in the way of built in gains in their current portfolio. The more gains, the higher the probability of at least maintaining the current divy, if not boosting the divy in the future ... via booking gains, paying them out. Looks like FEI has CEN beat there ... 26% to 10%.
So yeah Kel, I see your point about FEI being a decent buy here. Wonder why FEI has a higher discount to NAV than does most other Closed-End MLPs?
Thanks for the heads up.
Admitting there are some things about MLPs I've yet to grasp ... the FEI YE 10/31/2014 financials scare the heck out of me:
Investment Income - Investment Expenses = Negative $2 M
Booked $29 M in cap gains (including buy / write strategy)
BUT, paid over $60 M in dividends.
So, a little over 50% of every dollar you collected was just them giving you back your own money.
You realize this about FEI, yes?
Buy rights at .43 and you're getting CEN at a 6.8% discount to post offering, fully diluted NAV. Of the 26 MLP closed-end funds, 14 of them sell at a better value than a 6.8% discount to NAV. CEN rights are still overvalued. Way, way overvalued. Stupid people are buying the rights here.