The idea of global refi was written about in two different SA articles. For sure the debt has to be refinanced and that must have been part of the BK original plan. Don't know too much about the details ..just trying to figure out what the scenario could look like. Just the scent of such an idea should turn shorts into longs.
I have been trying to understand why holders of paper yielding 10% would surrender in favor of new bonds yielding 6%.
Premise: a reduction of 4% point in interest would mean savings of $100M a year in interest payments. Considering DXM makes $100M a quarter in FCF the saving would mean an immediate increase of 25% of FCF levels. Massive !
Here is what I am thinking: The new bonds would be freely traded bonds and because DXM has interest in reducing the DEBT level still it would continues to purchase bonds on the open market bidding up the price. Bond holders could sell their new paper to DXM, not below par like now, but ABOVE PAR. With the massive FCF DXM would easily keep the price pressure up. So today's holders of bank debt would give up 4% points on interest payments but probably get much more back on principal that would be bid up ! In fact I am of the idea current holders of debt may even welcome this transition considering the trend of FCF (mild decline - turning stable hopefully)
1 WIN !
How about the share holders:
The consequences for share holders are just mind boggling.
1) There would be no more deadline in 2016 for the debt and the idea that DXM could go bankrupt again evaporates.
2) DXM could use the massive FCF to buy back its own shares.
3) This means literally that the valuation of DXM could become a market type P/E valuation comparable to other media other companies out there. Do you know what that means ???
2 WIN !
1+2= WIN WIN !
I invested in DEXO back in late 2011. I have only added since then.
I think we will get there sooner. Taking longer that what I thought. Options expiry in September will be interesting after that we have Q3 earnings and another potential buy back. The big news in the next six months will be the global refi I guess. I suspect the sell off will finish this week and we may see stabilization and return to uptrend next week. I think there was a sell off of sorts after each of the last earnings; thing is we didn't get the spike up this time.
Savings in interest expense 2013 to date near $ 75M and for 2013 and 2014E about $100M.
$751M / 17M shares gives $ 44 per share.
Year end 2014 we could have $ 951M plus debt reduction since beginning of 2013.
That makes $56 per share.
A part from good digital growth here is what else I found to brighten the out look:
Adj. proforma FCF six months of 2013 $ 206M
Adj. proforma FCF six months of 2014 $ 193M
that is nearly a reduction of nearly - 7%
Now compare to the debt reduction:
end of June 2013 $3.287B
end of June 2014 $2.761B
The reduction is about 19%
This shows that even in what has to be a worst year for sales the effect of the debt reduction and consequent reduction of interest payments (over $50m savings for the year from June 30 2013 to June 30 2014) means that FCF has a decline of only 7% where as debt reduction outpaced reaching a 19% reduction. If we take out the $50M excess cash they had on hand pre merger the ratios is still very positive (debt reduction would be 17.2%).
So long as debt reduction percentage stays comfortably larger than the percentage reduction in FCF and maybe diverges further, which it should, we are on a good path.
$12.50 call options for September have increased marginally to 29017. Is it possible that these call options and the ones fro July and August are keeping the price around $12,50 and stopping from going higher. For each of the cited months there were important call options for $12,50 May be those that would want to buy in are holding off since the options position is so massive and there are interests in keeping the stock at or around $12,50 ???
Despite Hayman selling the MSN stock scouter system gave DXM under accumulation from Q1-14 results all the way up to Q2-14 results on 11th August. Since Friday 15 August 2014 the MSN stock scouter reports that institutes are selling DXM. Considering there are 91 funds (that manage more than $100M) invested in DXM (from NASDAQ) if some of these are lightening up (and triggering the MSN stock scouter!) after earnings report it does not worry me: this is not a landslide and it might just be a few selling. I think there was selling after the last two earnings reports any way it's just that when Q4-13 and Q1-14 were announced we had a nice spike up on the day which we did not get this time. Coming back to MSN stock scouter: I do not know how this system manages to track if institutes are buying or selling but it appears to be accurate. I suspect that the MSN stock scouter does not differentiate between funds that manage over $100m and those that manage less. The NASDAQ site reports only those funds managing over $100M (or that have over 10% of the stock) I believe.
From the earnings transcript:" Pro forma free cash flow for the 6 months ended June 30 (2013) was $176 million, which includes the cash impact of $50 million of integration and merger transaction costs."
In either case the decline is mild ..would you not agree ?
Proforma cash flow first six months 2013 176M (including 50M Merger &Transaction costs)
Cash flow first six months of 2014 193M (including 27M Merger and Integration costs)
From this point there has been little erosion yoy.
Check to see what the competition is doing ! Google the title. Years behind DXM !! But there is evidently busness to be taken as the best in wall street are behind New Media Investment (NEWM) . Fortress in fact.
Propel is the digital offering of Newm.
NEWM is a publisher of localy based print and online media in the USA. Here are key NE metrics for Q2. Free cash flow $19.6M (DXM $95M circa), revenue 158M (DXM 474M), % of digital advertising 9% (DXM about 30%), Google trained sails force 0 (as far as I know), (DXM 2000), Market cap 461M (DXM 229M). !
Results showed progress but nothing exceptional. For me EBIDTA was a little disappointing (due to lack of synergies?) but we could still recover in the second half. According to MSN stock scouter institutes were accumulating right up to earnings but for the last two trading sessions (Friday & Monday) they have been selling. Kyle Bass is out but on the other hand there is a monster $12,50 call option in September (28000 circa) which in a way compensates the K. Bass move. Even if the total number of institutes buying or adding surpasses those selling the total number of shares sold by institutes was greater than the number of shares bought in Q2 (due to the Kyle Bass selling). Conclusions ?? Are we in for a down leg ?
Fair enough ! Apparently the number of shares sold is greater than those bought over Q2. However there are more funds buying than those selling which does give some confidence to me at least ! Funds with over $100M under management MUST be doing homework before buying into DXM.
The Hayman position listed is referred to Q2. The bright side is that the share price gained even with Bass selling his stake all through Q2. If Bass decided to come back with call options it would not appear in the 13F of Q2 as these positions are much more recent. Considering their are Call and Put options in the 13F I would not be surprised if the massive call positions are in fact of Hayman as there is not fundamental reason for him to change his stance. I think Q2 results showed slow but steady progress, I little disappointing when it comes to synergies: Ebidta could be flat by now!! May be there will be some catch up in the second half of the year as far as synergies go!
Looks like Bass sold out. May be he is behind the options positions for August and September. September $ 12,50 call options 28.665.
1) As of today institutional ownership is up to 77,45% (from 75% circa). Data will probably be complete by beginning of next week...but provisionally there are more funds adding than there are selling.
2) Options expiry is close.
3) According to the MSN stock scouter institutional investors stopped accumulating share in DXM a few days before earnings and had been doing so since last Q1 earnings. This makes me think that uptrend since earnings is due to short covering.
that happened (25%rise) on last two earnings with shorts increasing their positions. When they finally cover the rise could be much bigger. In late 2011 when DEXO reported increasing digital sales for the first time the stock price went from all time low of circa 30 cents to $1.50 in a short period of time. I think some thing similar could happen this time too.