Perelman Selling Almost Everything as Pandemic Roils His Empire

(Bloomberg) -- Bit by bit, billionaire Ronald O. Perelman is parting with his treasures.His Gulfstream 650 is on the market. So is his 257-foot yacht. Movers hauled crates of art from his Upper East Side townhouse after he struck a deal with Sotheby’s to sell hundreds of millions of dollars of works.He’s unloaded his stake in Humvee-maker AM General, sold a flavorings company that he’d owned for decades and hired banks to find buyers for stock he holds in other companies.What in the world is going on with Ron Perelman? His exploits on and off Wall Street have been tabloid fare in New York since the go-go 1980s. But now, at an age when most fellow billionaires are kicking back, Perelman, 77, is facing a range of financial challenges, most of all at Revlon Inc., his cosmetics giant.Once touted as America’s richest man, his wealth has dropped from $19 billion to $4.2 billion in the past two years, according to the Bloomberg Billionaires Index.Bankers, socialites and art collectors have been buzzing about Perelman since his investment company, MacAndrews & Forbes, said in July it would rework its holdings in response to the coronavirus pandemic and the ravages it caused to American businesses, including his own.“We quickly took significant steps to react to the unprecedented economic environment that we were facing,” Perelman said in a statement. “I have been very public about my intention to reduce leverage, streamline operations, sell some assets and convert those assets to cash in order to seek new investment opportunities and that is exactly what we are doing.”Read Ronald O. Perelman's full statement herePerelman also gave more prosaic reasons for the shift, including spending time with his family during lockdown and a desire for a simpler life.“I realized that for far too long, I have been holding onto too many things that I don’t use or even want,” he said. “I concluded that it’s time for me to clean house, simplify and give others the chance to enjoy some of the beautiful things that I’ve acquired just as I have for decades.”Graydon Carter, the former editor of Vanity Fair who’s known Perelman for three decades, said the shift in Perelman’s attitude is sincere.“Often when people say this sort of thing, it’s masking something else. In Ronald’s case, it’s true,” said Carter, who partnered with Perelman to reopen the Monkey Bar in Midtown Manhattan. “He has learned to love and appreciate the bourgeois comforts of family and home.”Carter described Perelman as a “charismatic swashbuckler” who once enjoyed evenings on the New York social circle a little too much. But he said Perelman is now “crazy about spending time at home” with his fifth wife Anna, a psychiatrist, and their two young sons.Richard Hack, who wrote a 1996 unauthorized biography of Perelman, is skeptical.“If you want a simpler life, you go buy a farm in Oklahoma, not sell a painting out of your townhouse in Manhattan,” Hack said. “If he’s selling his art, it’s because he needs cash.”The art includes Jasper Johns’s “0 Through 9,” priced in the $70 million-range, Gerhard Richter’s “Zwei Kerzen (Two Candles),” which went for more than $50 million and Cy Twombly’s “Leaving Paphos Ringed with Waves (I),” which found a buyer for about $20 million, according to people with knowledge of the matter, who asked not to be identified as the sales were private.“What he’s selling is as blue chip as it gets,” said Wendy Goldsmith, an art adviser in London.Some proceeds are slated to pay down loans from Citigroup Inc., according to people with knowledge of the arrangements. He also has loans from JPMorgan Chase & Co., Bank of America Corp. and UBS Group AG related to his artwork, filings show.These are not forced sales, said a spokeswoman for Perelman. She also denied a New York Post story that “The Creeks,” his 57-acre East Hampton estate, is being discretely marketed and said that he remains committed to his considerable philanthropy. Perelman is building a performing arts center in the Financial District, is vice chairman of the Apollo Theater, and sits on the boards of Columbia Business School and New York-Presbyterian Hospital.Read More: Billionaire Perelman Seeks to Reset Empire to Face New WorldIt’s a striking turn for Perelman, long celebrated and feared for engineering some of the most ambitious deals of the 1980’s and 1990’s, and for the litigation, divorces and corporate brawls he left in his wake.“He was imaginative, aggressive and innovative in ways that changed the financial landscape,” said investment banker Ken Moelis, a long-time Perelman adviser.But now, one of the original pioneers of the Michael Milken-fueled junk-bond takeover era is realizing that there’s such a thing as too much debt — especially during a pandemic.Take Revlon, which sits at the center of his empire.Its $365 million market value is a whisper of the $1.74 billion he paid for the company in 1985. He owns about 87% of Revlon and has full control over the firm, run by his daughter, Debra Perelman.For decades, it strained under a heavy debt load, forcing Perelman to provide loans or inject funds as he switched executives to pursue various turnarounds. The billionaire made clear in a Wall Street Journal interview that he “loved the business” and, for better or worse, it most defined him.Revlon, which was slow to respond to shifting trends 20 years ago, has more recently lost sales to smaller beauty companies that lured customers with social media. Now revenue is plunging further because of store closures. The company has $3 billion of debt, some of its bonds trade at 14 cents on the dollar and the company faces a cash crunch in November. A Revlon spokesperson declined to comment.His problems aren’t confined to lipstick. Perelman used his Revlon shares as collateral for MacAndrews & Forbes debt, filings show. The shares have plunged 68% this year, a decline that would typically require lenders to seek additional collateral or repayment of the loans.Shares of other companies in his portfolio, including Scientific Games Corp. and Vericast Corp., were also pledged against MacAndrews & Forbes debt. At least nine banks have claims against Perelman’s assets, including his art collection, house in the Hamptons and various aircraft. About $267 million in mortgages are linked to the firm’s Upper East Side headquarters in Manhattan and other buildings he owns.Perelman has made progress on plans to sell some of his holdings.MacAndrews & Forbes struck a deal this week to sell its 35% stake in Scientific Games to an Australian investment firm. KPS Capital Partners in July agreed to buy Perelman’s stake in AM General, the Indiana-based maker of Humvees and other vehicles, for an undisclosed amount. A $439 million deal to sell Flavors Holdings, a maker of sweeteners and food products, to Whole Earth Brands Inc. was completed in June.Further simplifying Perelman’s holdings, however, might be easier said than done.Revlon’s $3 billion of debt would be a concern for any potential buyer. And Vericast, a collection of marketing and payments businesses, has struggled to navigate industry changes while dealing with its own substantial debt burden. Two of its major revenue streams are check printing and print-based advertising, both in decline due to digital payments and online marketing. Its RXSaver and RetailMeNot units are being shopped, indicating it may be easier to sell the company in parts than as a whole.Read More: Perelman’s Coupon Company RetailMeNot Said to Weigh Sale OptionsEven art sales can be troublesome. A Francis Bacon painting belonging to Perelman, valued at about $15 million to $23 million, was pulled from auction at the last minute due to a lack of interest. The art collection — which contains some of the most valuable 20th century works, including sculptures by Alberto Giacometti and paintings by Mark Rothko and Ed Ruscha — is now responsible for more than a third of his fortune.There are signs that the turmoil is taking a toll within MacAndrews & Forbes, where several of Perelman’s most senior staff have exited in quick succession.In July general counsel Steve Cohen departed, followed by spokesman Josh Vlasto and James Chin, who headed the capital markets group. Chief Financial Officer Paul Savas resigned in June over irregularities with $5 million in insurance payments between Revlon and MacAndrews & Forbes. He was replaced by Jeffrey Brodsky, who according to his LinkedIn profile, has “an extensive background in crisis and turnaround management.”Still, those who know him well say any recent stumbles won’t define him.“Ronald has been dealmaking at the highest level for forty years,” Moelis said. “Even Michael Jordan missed a shot.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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3 Big Dividend Stocks Yielding Over 8%; JMP Says ‘Buy’

From the end of March through the end of August, stocks had a tremendous runup to record high levels. The gains completely wiped out the losses from the mid-winter ‘coronavirus collapse,’ and it looked like we were in for a sustained run of good days. But all of that changed as September rang in. The market hit a bump, and has been undergoing a correction. The Nasdaq is down nearly 7%, and volatility has been high so far this month.A new report from Canaccord's Tony Dwyer puts the situation into perspective by pointing out the major source of uncertainty: “In a true statement of the obvious,” he writes, “this is the most complicated election-year setup we could possibly have.” He goes on to note the four most important ‘unknown’ factors: how the voting will actually happen this year, and avoiding vote fraud; who will win the White House; if the Democrats will sweep the Federal level elections; and, if the loser will concede the contest without a dragged-out legal battle. These are points giving investors ulcers at night.Dwyer balances all of that with the predictable factor: “Unlike the political backdrop, which is totally unpredictable, we know the Fed intends to keep rates at zero and to keep intervening when there are any signs of stress.” An active central bank will continue injecting liquidity into the system, which will be bullish for stocks. In Dwyer’s view, the only question is, what tools will the Fed use?So, in a situation that recalls Donald Rumsfeld’s ‘unknown unknowns,’ many investors are gravitating toward defensive stocks, taking steps to ensure a steady income stream. And this brings them, quite naturally, to dividend stocks. These traditional defensive plays may not offer the high share appreciation that is so attractive in normal times, but their high-yielding dividends make up for that when things turn sideways.With this in mind, analysts from JMP Securities have tapped three such defensive stocks, with dividend yields range from 8.5% to more than 12%. We’ve run the three through the TipRanks database to find out what makes them so compelling. Here are the results. BlackRock TCP Capital (TCPC)The first stock on our list is a financial company. BlackRock TCP Capital is a specialty finance company with a clear focus on mid-market lending. Since 1999, BlackRock has worked on originating and investing in debt securities, and has made a total of $20.1 billion in financing loans to more than 500 companies over the years. A plurality (over 34%) of the company’s investments are in the software and financial services fields, but BlackRock’s portfolio, current valued at $1.6 billion, spans a diverse field of targets.The company’s investments are profitable; as of the end of Q2 this year, the average annual return was 9.8%. That income provides earnings that regularly beat the forecasts. As the recessionary pressures began to ease, Q2 earnings came in at 36 cents per share, or 20% higher than expected.BlackRock uses these earnings to fund its dividend, which has been paid out regularly for more than 3 years. In a nod to the coronavirus crisis, the payment was cut from 36 cents to 30 cents – but at that level, BlackRock returns almost all of its earnings to company shareholders. The dividend yield is 12.1%, more than 6x higher than the average yield found among S&P listed companies – and more than 12x higher than the yield on US Treasury bonds in these days of near-zero interest rates. JMP analyst Christopher York is cautiously bullish on TCPC, and one of the reasons he cites is the company’s solid cash position."The company has cash of ~$20.6mln and ~$328mln in availability on revolvers, which is more than enough to support any draw of unfunded commitments of $46.0mln. We think the liquidity at the company is very strong and think the resources at the advisor are superior to many BDCs, which we expect to lead to good longer-term restructuring and recovery outcomes,” York noted. York rates this stock an Outperform (i.e. Buy) and his $11 price target implies room for 13% share price growth in the coming year. (To watch York’s track record, click here)Overall, the analyst consensus rating here is a Moderate Buy, based on 3 Buys and 2 Holds. Shares are selling for $9.76 and the average price target matches York’s, at $11. (See BlackRock stock analysis on TipRanks)PennyMac Mortgage (PMT)Next up is another financial stock, PennyMac Mortgage. This company is a mortgage investment trust, a sub-niche of the real estate investment trust industry that provides somewhat more liquidity by investing primarily in mortgage backed securities rather than directly in real properties.During the corona crisis of 1H20, PMT saw earnings turn negative in Q1 and return to positive territory in Q2. The numbers were -$5.99 EPS in the first quarter, and $4.51 in the second. Revenues followed a similar pattern, with the Q2 top line hitting $475 million.The company adjusted its mortgage payments in the first half to account for the earnings volatility. PMT paid out 25 cents per common share in Q1, just slightly more than half of the long-held dividend of 47 cents. In Q2, management started raising the dividend, and paid out 40 cents per common share, which gives a yield 9.1%.Trevor Cranston wrote the review of this stock for JMP, and sees the company with a path forward as the pandemic effects wane. “[Our] outlook on MSRs has improved somewhat in the past few months as the expected negative COVID-19-related impact has subsided, and we continue to believe strength in the correspondent lending business is likely to more than offset any weakness in MSR results due to strong tailwinds for origination volumes, even as conventional margins have returned to more normalized levels," Cranston opined. “As a result, believe PMT shares should trade at a premium to the hybrid REIT peer group as many peers sold significant volumes of credit assets in late 1Q and early 2Q, resulting in less book value recovery potential.”Along with these comments, he gives the stock a $19 price target, implying room for 9% upside growth. Cranston’s rating on the stock is Outperform, (i.e. Buy). (To watch Cranston’s track record, click here)Overall, PMT holds a Moderate Buy analyst consensus rating based on 5 recent Buys and 2 Holds. The stock has an average price target of $19.40, slightly higher than Cranston’s, and indicative of a 11% upside potential. (See PMT stock analysis on TipRanks)Oaktree Specialty Lending (OCSL)Last up on this list, Oaktree, is another specialty finance company. Oaktree provides loans and credit access for small- to mid-size companies that cannot gain entry to traditional sources of capital. Oaktree’s portfolio is modestly diverse, with $1.4 billion invested in 128 companies. Most of this is first lien debt, 62%, while some 20% is made up of second lien. Oaktree reported last month on its FYQ3 results, and the results were solid. EPS came in at 12 cents, against a forecast of 11 cents, for a 9% beat. Revenue for the fiscal third quarter was $34.4 million, even with forecast and down slightly yoy.The earnings results suggest that the company is emerging from the corona crises intact, a thesis supported by management’s decision to raise the quarterly dividend. They have not raised the payout since mid-2018, when it was set at 10 cents per common share. The new dividend payment is 10% higher, at 11 cents, but while the numbers seem small, the yield is an impressive 8.5%.Turning back to Christopher York, we find that the JPM analyst has set a $6 price target on OCSL, suggesting his belief in a 24% potential for the stock.Backing his stance, York writes, “We think the combination of stability in portfolio performance in 2Q20, along with growth in the investment portfolio at wider spreads gave the board the necessary boost to finally increase the dividend with improved visibility in recurring core earnings. Going forward, we believe there are a couple levers available for OCSL to expand earnings and ROE, so we think another dividend increase in F2021 is possible.”Of the three stocks on this list, Oaktree is the one with a Strong Buy analyst consensus rating – and it is unanimous. The stock has received 5 Buy reviews in recent weeks. The shares are priced at $4.83, and the $5.60 average price target implies an upside potential of 16% for the coming 12 months. (See OCSL stock analysis on TipRanks)To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.