ALTISOURCE ASSET MGMT CORP AAMC
September 01, 2021 - 12:17pm EST by
Extreme-mispricings
2021 2022
Price: 21.00 EPS 0 0
Shares Out. (in M): 2 P/E 0 0
Market Cap (in $M): 42 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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Description

AAMC has been covered well by TheEnterprising a while back, I have loosely followed the situation for a few years and believe now is the time.

AAMC – Altisource Asset Management Corp - $15/share – 2M shares out

My base case is AAMC is a 3 bagger in a matter of months, and in a very conservative case a +80% inside of 12 months, the risk of permanent capital impairment is very low imo.  In a bullish scenario I believe the stock could trade at $80-120+ in a matter of months, or a 5-8 bagger.

AAMC was spun out of Bill Erbey’s Altisource in 2012, the stock initially traded at $30 and within a couple of years reached a high of ~$1,200 share. Erbey created AAMC as the external management company for Front Yard Residential (formerly RESI on the Nasdaq), the AAMC deal with RESI had AAMC earning/extracting very generous payments – which also would grow if RESI grew, Erbey was (and still is) a large holder of the spinoff AAMC.

The management fees with RESI were eventually negotiated down and RESI experienced some troubles. Fast forward to today, RESI was taken out and the AAMC contract was terminated and AAMC received a payment and as of Q2 end has $91M in cash.

Back in 2014 when AAMC was ~$1,000 share AAMC issued $250M in face value preferred stock, the conversion price is $1,250/sh and the pref comes with no interest. The pref was recently held by three institutions, it was issued primarily for AAMC to pursue a share buyback, the buyers of the preferred were holders of the common equity. The mandatory redemption date on the pref is March 2044. The prefs do have a chance to redeem every 5 years, the first date was March 15th 2020, none of the pref holders redeemed and Putnam later settled with AAMC for 12 cents on the dollar in early 2021– interestingly, Putnam took 2/3rd stock and the rest cash – even though AAMC had plenty of cash, they likely see the upside in the common as well. Wellington is the second pref holder just settled for 12 cents on the dollar, or $2M, leaving Luxor’s $150M in face pref left. The pref doesn't have teeth. Luxor, as a fiduciary likely can’t keep trying to spend money litigating the pref when well advised peers Putnam and Wellington took 12 cents on the dollar. The recent Wellington settlement for 12 cents likely backs Luxor into the corner even more.

A redemption (next date 2025) would need to be met from “funds legally available thereof” and they need to meet all tenders or none.  Funds legally available are determined on the “business judgment rule”. So every 5 years as long as AAMC is using its cash for operations, then Luxor won’t be able to redeem.

Luxor will likely have to take the 12 cents on dollar for their pref similar to Putnam and Wellington, or wait until 2044 to redeem.

Erbey bought $2.5M in stock in late 2019, I’m guessing he has likely been restricted lately until AAMC’s acquisition hunt wraps up and or Luxor settles.

This means AAMC is a cash box with a pro forma NAV in the mid 30s per share.

Where it gets really interesting is AAMC has stated in its last two 10-Qs that it is pursuing and in discussions with acquisition candidates in cryptocurrency related businesses, as well as a couple real estate businesses. Erbey owns 50% of AAMC and we are well aligned with him. Erbey shown brilliance in enormous value creation at times in the past - and also a string of several subsequent failures.  Erbey has founded 6 multi-billion dollar public companies, I don't think you can do that without being a rockstar money maker. I believe Erbey is very sharp and knows the crypto space well (RealVision interview). Erbey is involved in the crypto space including an ownership of a crypto payments business call ForumPay which looks very interesting (links), Erbey also mentioned he has an Eastern European crypto exchange business. Given Erbey’s influence at AAMC and ForumPay, plus the disclosures in the AAMC 10-Q I believe Erbey will succeed in backing ForumPay (or possibly another crypto business) into AAMC which is sitting on $91M in cash.

Given that there are only 2M shares and Erbey owns half of them, the true float is very small and historically AAMC has only traded 13k shares/day. Given investor demand for crytpo businesses, and ForumPay likely being a high-quality emerging disruptor, investors will likely have a big appetite to own shares in this story, and a retail buying frenzy would likely ensue. I believe Erbey wants to make some real money here, hes sitting on ~1M AAMC shares, and I see a path to potentially $150+ per share.

Notably, AAMC had been holding some RE investments but in Q2 flipped them to cash, likely in anticipation of closing an acquisition. 

Also, AAMC has an interesting imbedded option – Erbey has sued Pimco and Blackrock in St. Croix, VI. Erbey is seeking damages in the billions for their alleged unlawful acceleration of foreclosures in the aftermath of the financial crisis. AAMC would receive half of the proceeds, my base case nothing comes from this but it is interesting option value.

One can google search Erbey and many that know him describe him as extremely intelligent with an insane work ethic, he moved his residence to the Virgin Islands to pay less in taxes.  The original AAMC spinoff Erbey engineered was a 2-year 40 bagger, Erbey is one of the great financial and entrepreneurial minds today, we are aligned with him and see AAMC as a very attractive setup.

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Luxur is now further pinned down and will likely have to settle. Clearing the way for the common to work.

AAMC is likely closing in on a cryptoco acquisition with its pf $75-80M cash. Erbey is incentivized to make his ~1M AAMC shares worth a lot, which I believe he will make AAMC a multibagger by backing in one of the cryptoco cos hes involved in into AAMC.

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