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My bankruptcy search is finally starting to bear some truly ripe
fruit. I have found a handful of companies who face a probably chance
of bankruptcy from both cash flow insolvency and balance sheet
insolvency simultaneously, in addition to being in industries extremely
hard hit by the current macro environment.
I will start sharing
some more specific data with subscribers very soon - following are the
three likely "bankrupt to be" companies that we have short-listed thus
far. Short drill down summaries will be available to subscribers by
next week, followed by full forensic analysis of the short list
finalists a week and a half later.
Candidate one (You can consider this GGP part 2, but with considerably more leverage, lower quality assets and a lot less cash):
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The Company is in the process of development of its raw land assets,
and has not yet started to earn revenue except on account of
agricultural revenue from its undeveloped land reserves (these revenues
are very limited). The local government authority's board voted not to
accept the right-of-way grant for the company's development project and
stopped the company from proceeding. The company filed the suit against
the board which is still pending.
- As a result, the company is
continuing to report large losses owing primarily to G&A expenses.
It's (almost) entire equity has been wiped out.
- The company has debt to equity of 251% and debt-to-assets of 70%.
Although the company has net debt of just $21 mn, it doesn't seem to have any sources of cash flows to fund its debt obligations.
The company's valuation seems to be highly unjustifiable with P/S of 2209x and P/B of 18x.
The company's stock price has increased 3% over the last one year and 9% over the last one month.
The company has zero-coupon secured convertible term loan of $40 mn due
by June 29, 2011. The interest is accrued on the loan but is payable
along with loan in 2011.
Its current cash position can support
only 2 months of its operations (if the board approval is not
received). The company has acknowledged that it might have to resort to
additional borrowing under the present state of matters (good luck with
that).
The Company has nearly 45,000 acres of land in three
areas of eastern San Bernardino County California. Of this since 1982,
it acquired 34,500 acres in eastern San Bernardino County, California.
Total value of land as at June 30, 2008 on the company's books stood at
$22 mn. However with debt of $40 mn maturing on June 2011 and without
any significant cash flows, the company could be headed towards
difficult times ahead.
A more
detailed scrutiny of the state of the legal suit against the muni board
could throw more light on the company's future. But, given the
information we have obtained thus far, the resolution or the approval
doesn't seem to be an early proposition.
A relatively unknown in the financial space that will probably be hurt more than Lehman when the sh1t hits the fan
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The company has reported negative free cash flow since 2005. Operating
cash flows have also been negative during this period except for couple
of quarters.
- The company has high debt-to-market cap of nearly 200%. It's debt-to-assets stands at 77%.
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The company's financial instruments including derivatives, commodities,
corporate and municipal bonds and equities form nearly 46% of its total
assets.
- The company is into the business of market-making and
dealing in financial instruments, currencies and commodities, and asset
management with principal revenue stream through sale and purchase of
physical commodities. With high volatile commodities and financial
markets, the company could not be expected to turnaround in the
medium-term and report positive cash flows.
- The company's
share price has declined 8.6% over the past one year. The company's
share price has declined 35.2% over the past one month. Interesting the
company's share price has witnessed a decline of 19% in yesterday's
trade. However based on P/B based valuation (for financial companies)
the stock still seems to be overpriced with P/B of 3.0x.
Another
Real Asset Problem. I have an on the ground, grass roots knowledge of
this particular company and its operations and have considered shorting
it for some time now.
- The company has reported negative free cash flow since 2005.
- The company is highly leveraged with debt-to-assets of 74%, debt-to-equity of 862% and debt-to-market cap of 257%.
- The company has reported a slowdown in revenue growth over the last 2 quarters and decline in net income since 2007.
- The company has reported net loss over the last 2 quarters.
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The company seems to be having problems in servicing its debt with
interest coverage ratio of 0.90x, debt-to-EBITDA of 13.7x, and
debt-to-OCF of 24.2x.
- However the stock has witnessed a
decline of 43% over the last one year and 21% over the last three
months. Given its fundamentals, the situation could get worse for the
company, particularly in view of slow-down in economic activities and
wide-spread losses in the financial market. (We plan to look at its
debt repayment schedule to get more insights into its liquidity
situation in the coming periods). It is also facing grass roots
community headwinds.
We are in the process of looking at 7 other companies, all in various industries and sectors.
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Hi Reggie,
When I hit the read more button, the system takes me to the next page which shows the heading of the article only.And the part content which I am able to see without hitting the read more button also disappears.
Please look into this and advise.
Thanks
Anil