Underwriters have 30 days to exercise option to buy an additional 6.75 million shares at 17.95 per share.
Since option is not limited to covering overallotments, underwriters can sell short at any meaningful price above 17.95 because they have a guaranteed cover price of 17.95. Since these guys will cut their grandmother's throat for a nickel, you can bet they are shorting today at 18.12. Whoopee. They make 17 cents per share instead of 45 cents had they been able to peddle all at 18.40. This one was way undersubscribed so the underwriters are dumping and shorting until they unload 51.75 million shares. As long as they get more than 17.95 they make a profit. Then the sell pressure stops.
Tutes hold too big a percentage of shares. Tutes don't drip. Population of retail shares too small to justify cost of discount drip program.
Got cut off by yahoo. Adjusted issue price = 17.8916625 x 30 million = 536.75 million proceeds to nrf.
This calculation is done every day the contract is open. The federal funds rate fluctuates daily. I do not know if the loan rate fluctuates.
Why do this??
1. NRF does not need the cash now and does not want to be stuck with dilutive shares outstanding.
NRF will have to record dilutive shares in calculating eps and cad p/s ONLY to the extent of the number of shares needed to be issued to cover a market price in excess of the forward sale price.
2. NRF does not expect the price of its stock to go up enough in the next six months to justify the cost of a second offering. To the contrary, flat cad per share for 3 and 4Q could cause price to go down.
NRF has the option to settle the forward sales contract in cash or shares equal to DB's profit or make whole. They might do this if they had no use for the proceeds of issuing 30 million shares. This won't happen so I will not explain it.
So don't be hoping for price-spiking news from NRF in the next 6 months. Hamo can't see any coming. Otherwise he would not have sold 30 million shares short.
The prospectus for this offering with the blanks filled in was filed last night. NRF sold 15 million shares to the underwriters for 17.95 per share, netting 269.25 million before offering expenses of 3.05 million for the entire deal including the forward sale contract. So, applying the offering expenses against just this part of the deal, net net was 266.20 / 15 = 17.74667 per share. Let's round this to 17.75 per share (from 18.85 close before offering announced). 1.10 total discount and cost / 18.85 = 5.836%, on the expensive side for nrf.
NRF also sold 30 million shares short against the box using DB as its proxy. DB borrowed 30 million shares and sold them to the underwriters for 17.95 per share. DB collected 538.5 million of proceeds from its short sale. Of course it will pay down debt or otherwise earn interest on these proceeds until the proceeds are needed to buy 30 million shares from NRF to cover its short position. The initial forward sale price is 17.95 per share, BUT that price gets adjusted daily by an interest factor. The interest factor is the federal funds rate minus the "loan rate", which was not disclosed because the forward sales contract has not (yet) been filed with the sec. As long as the loan rate is higher than the federal funds rate, the forward sales price goes down a miniscule amount every day.
To illustrate how this interest factor works, suppose DB has to pay the lenders of these shares an average of 50 basis points per year (1/2 of 1%). Now suppose the "loan rate" negotiated with NRF is 75 basis points. Also suppose the federal funds rate is 10 basis points. The adjustment factor on this day is -65 basis points (10 minus 75). So, since 1% of 17.95 is 17.95 cents, 65 basis points is 11.6675 cents for a whole year. If these interest rates stayed constant for exactly six months and the forward sales contract were settled at exactly 6 months, then 5.83375 cents would be subtracted from 17.95 per share. NRF sells 30 million to DB for 17.8917
I give up. That is NOT how to calculate the effect of inflation. Nevertheless, if you are happy thinking that way, peace be with you.
The day nrf announced its offering which included db borrowing 22.5 million shares Fidelity showed 15.6 million or 15.8 million available to loan witn no htb designation. A minute ago it was 7.8 million. Still no htb.
You people at other brokers...........start a sell short order on nrf. See what the order screen tells you about availability and whether htb fee applies. If so, how much. Or you can do it with a phone call. Please post results to this thread, naming broker.
Here's a copy & paste of my 8/12 post about this co.
Lookee what I found in NSAM's 10-Q:
"In June 2014, the Company acquired a 50.0% interest in Fund Alliance Corporation, a crowd-funding technology platform company for $4.0 million. The Company accounts for this investment under the equity method. In addition to earning a proportionate share of net income, the Company will also earn a net 0.50% fee on any syndicated investments, a minimum base management fee of 1.0% and an incentive fee of 15.0% on contractually defined excess cash flows. As of June 30, 2014, the carrying value of the investment was $4.0 million. For the three and six months ended June 30, 2014, the Company did not recognize any income related to this investment."
NSAM also had 111.5 million of unrestricted cash as of 8/8.
A google on Fund Alliance Corporation found it sold another 5 million of stock in July. I conclude nsam did not buy any of the July round because it was not disclosed as a subsequent event.. This is interesting. NSAM made its first investment in a newly managed company.
You have a constitutional right to be wrong about inflation.
Your preferred dividend will never increase. For every 1.00 of dividend you get today you have 1.00 of purchasing power. With 2% inflation for 20 years you need 1.4859 to buy what 1.00 buys today. Your 1.00 of preferred dividend which will still be 1.00 20 years from now is 67.3% of what you need to have the same purchasing power. You have lost 32.7% of your purchasing power on 1.00.
Likewise, your 25 stock value, which never will go much higher due to the call provision, will be worth 16.825 in today's purchasing power in 20 years at 2% inflation. (67.3% x 25).
Make that 3% inflation for 30 years and today's dollar is worth 41 cents.
When you have no upside, as is holding nrf preferred, inflation is a guaranteed loss of monumental proportions over a very long time period.
Hamo is not the type of guy to live with a little bit of failure. A general reduction of cad leading to a reduction of the common dividend would, imo, cause Hamo to take bigger and bigger risks, reaching for outsized rewards to avoid the dreaded reduction.
Yeah, it takes time to go down the toilet, even with a Hail Mary going bad. Common goes down sooner and faster than preferred, but in the end, imo, both are worthless. Preferred holders have time to see what is likely to come and get out, but human nature tells me preferred holders would hold hoping for a comeback which would probably not come.
It's a matter of degree.....the perception of preferred's safety over common. Very long term preferred holders are taking a guaranteed loss from inflation.....no upside at all..... in exchange for some degree of perceived safety. In my opinion.....and it is only an opinion.....the degree of safety of preferred over common is not what many people think it is. IMO, whatever that degree of safety is, it is not worth giving up the upside of common.
Yeah, I first bought on the March offering for a flip. Too slow a recovery for flip so it became a keeper for yield.
Proof I don't bat 1,000 on these flip calls. At least this one did not go bad on me like that RAS dog I'm still holding.
Better today, but still short of 1.17 increase which an informed investor should have been willing to pay yesterday. 37 cents yesterday and 62 today = 99 cents. It will take more time.
BTW, this is an illustration of how the little guy can be ahead of the market. Know your company and do immediate analysis of developments.
I estimated 1.17 immediate increment from yesterday. Don't know time frame of DB 2.00 increase. If target is a year from now, I agree because the slow, dumb, lazy market will have seen it in the rear view mirror by then.
I've been in AI since last March on an offering plunge. Have collected 13% yield plus about 6% appreciation until yesterday. Could not resist yesterday at more than 2% below offer price.....IMO a no-brainer. Dilution freak lemmings really went nuts on this one in unison at the open. Took 1.02% dinner trade in 5 hrs..831 pre-tax
I suggest not selling nsam because the market just does not understand it. Too lazy, too dumb, waiting to be spoonfed.....all of the preceding? Don't know how much of which but can see market change today does not comprehend effect this offering has on nsam cad.
We been told estimated annualized cad = 66 cents and each billion of equity issued by nrf = another 6 cents.
So, before this offering was announced nsam closed at 18.72 on 66 cents plus maybe 6.6 cents in calendar 2015 from griffin deal if it closes at end of 2014 (drop dead date = 1/31/15). So, 18.72 / 66 cents = 28.36 timed estimated annualized cad.
Today's deal provides a minimum of 405 million of new equity which is 40.5% of a billion so 40.5% x 6 cents = 2.43 more cad per share beginning on 9/10/14. This is hard cad starting now. So, 2.43 cents x 28.36 multiple = 68.9 cents added to yesterday's price all other things being equal. Whadda we get today? 37 cents against a hard, immediate 2.43 cents. We got a 15.23 multiple on the increment from a 28 multiple stock.
PLUS, this deal has a high likelihood nrf will sell another 22.5 million shares at something like 17.80 to DB so DB can cover its short position. 22.5 x 17.80 = another 400 million of equity within 6 months which = another 2.4 cents of annualized cad beginning no later than March 2015. This calls for maybe a 20 multiple which = 48 cents.
How high the likelihood? Very. 405 million doesn't even cover the 481 million loan due this month. There is nothing left for the hotels and London office building. Hamo WILL issue the stock.
So, 69 + 48 = 1.17 nsam should have increased today. We got 37 cents. Just be patient. A slow, dumb market will eventually catch on, probably after Hamo hands them the info on a silver platter in Nov.
I think you are right about the market discounting the value of deferred tax assets, in large part because it doesn't understand gaap accounting for income taxes. The capital loss carryforwards expire this year but a valuation allowance was booked for the estimated tax savings to be lost at expiration. In other words there is no deferred tax asset for the clc expected to expire unused.
The biggie is the deferred tax asset from net operating loss carryforwards and these don't begin to expire until 2027. While the deferred tax assets don't earn interest like mbs investments do, they allow taxable income to be earned tax free which increases cash flow to pay dividends.
I don't have a problem including deferred tax assets in book value as long as the valuation allowance is reasonably correct. I think the number is ok.
Very good, lunco. I see you have been paying attention on the nrf board. You are correct the offering is a follow on, not a secondary.
You are also correct on dilutive to bv. However, I believe it will be slightly accretive to adjusted earnings or at the least neutral on a per share basis. IMO the dividend is more than safe in the current interest rate environment.
Also, thanks again for the dinner card. Had both kids the week after 4th of July so took them to the restaurant.
Still have enough left for one or two more dinners there.
BTW, I got 3,000 in taxable account (for dinner trade) at 27.0427 and 4,000 in IRA (probably keepers for yield) at 27.042. Dilution freaks went nuts on this one. I'm happy to profit on lemmings.
The entire deal closed before the market opened. NRF is selling 22.5 million shares directly to the underwriters for about 18.00 (18.40 to public minus 40 cent underwriter's discount) per share. DB is doing the same only DB is borrowing 22.5 million shares. The offering sells out immediately because the underwriters buy the entire offering and assume the risk of reselling them at a profit. This sale does NOT hit the market volume.
After the offer is priced to the public (18.40), the underwriters get on the phone to tutes trying to get them to subscribe to the offering at 18.40. Those who subscribe buy shares from the underwriter which is acting as a principal. These sales from underwriter to subscriber are NOT open market sales and do NOT get included in open market volume. You cannot determine by market volume how well the offering is selling.
Any shares the underwriters cannot sell to subscribers can be sold in the open market by the underwriter. The underwriter hopes to get a price higher than the offer price. However, if tute subscriptions are low, the underwriters get stuck with a lot of unsold shares which they do not want to hold. To unload unsold shares, the underwriters "eat" some of their discount by selling under the offer price. So, at 18.35 the underwriter is making 35 cents per share instead of the 40 cents they thought they would make.
A PRICE below the offer price and very high volume means the tute subscriptions were low and the underwriter is dumping shares at a discount just to get rid of them.
This offering was not well received by the tutes, probably because of the forward sales contract.