ARCTIC GLACIER INCOME FUND AGUNF
February 06, 2014 - 9:31am EST by
JetsFan
2014 2015
Price: 0.19 EPS $0.00 $0.00
Shares Out. (in M): 353 P/E 0.0x 0.0x
Market Cap (in M): 69 P/FCF 0.0x 0.0x
Net Debt (in M): 34 EBIT 0 0
TEV: 102 TEV/EBIT 0.0x 0.0x

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  • Liquidating Trust
 

Description

Workout liquidation play with 20%-30% upside and cash distributions to be paid out to unitholders this year.  The units currently trade at $0.1945 for a market cap of $68.7mm. I believe we will see distributions of $0.23 - $0.25 per unit over the next year as the liquidation completes. The units are surprisingly liquid with a few large funds establishing meaningful positions in the name. 

Overview

Arctic Glacier Income Fund (OTC: AGUNF, CNQ: AG.UN) is an income trust that is currently liquidating under creditor protection.  The company used to have a packaged ice manufacturing and distribution business which was sold to HIG Capital in 2012.  The estate is sitting on US$118.1mm cash with proven claims of about $34mm (40% of which are in Canadian dollars aka the Northern Peso).  Most claims are settled and the monitor is putting together a plan of arrangement to distribute the proceeds.  An overview of the current situation is provided in the 14th report of the monitor: http://www.amcanadadocs.com/arcticglacier/documents/Fourteenth%20Report%20of%20the%20Monitor%20(January%2030%202014).pdf

Background

February 22 2012 – Files for CCAA and Chapter 15

June 8 2012 – Sells operating business to H.I.G. Capital for $434.5mm

September 5 2012 – Establishes claims process

October 31 2012 – Claims bar date

Late March / Early April 2014 – Will establish plan or arrangement in order to effectuate distributions to creditors and unitholders

Valuation
 
    Mid High Low   Notes
Assets          
  Cash $118.1 $118.1 $118.1   As at Jan 29 2014
  Tax Receivable $1.6 $1.6 $1.6   US tax refunds remaining
             
Liabilities          
  Change of Control Payments -$9.9 -$9.9 -$9.9   ~C$11mm
  Direct Purchasers Settlement -$10.0 -$10.0 -$10.0   US$10mm
  DOJ Payment -$7.1 -$7.1 -$7.1   Plea agreement entered between   DOJ in which AG agreed to pay US$9mm over 5 years ($2mm has been paid);   Interest accrues at 0.34%;
  Indirect Purchaser Settlement (estimate) -$3.1 -$1.0 -$4.2   max settlement amount of   $3.95mm,  Class Counsel Charge of   $200,000, resulting in a total maximum estate outlay of $4.15 million. 
  Professional Fees (estimate) -$1.5 -$1.2 -$3.0    
  Retail Purchasers Payment -$1.8 -$1.8 -$1.8   13th Monitors report: Canadian   Direct Purchaser Claim has been accepted as filed in the amount of CDN$2   million;
  Interest Payable -$1.0 -$0.5 -$1.7   Estimate - Not yet   established;  Assume 3%-5%, accrual of   6-12 months
  Total Liabilities -$34.5 -$31.6 -$37.7   Total proven claims of $34.495mm   as at Jan 29 2014
             
  Cash Available to Unitholders $85.2 $88.2 $82.0    
  Shares O/S 353.32 353.32 353.32    
             
  Estimated Liquidation Value (US$) $0.241 $0.250 $0.232    
  AGUNF US Equity $0.195 $0.195 $0.195    
  Estimated Return 24% 28% 19%    

AGUNF has $118mm in cash and $1.6mm in tax receivables.  I estimate $32mm - $38mm will get distributed to claimants leaving $82mm - $88mm to unitholders, or $0.23 - $0.25 per unit.

Unsettled Claims (p.7 of 14th report of monitor)

Indirect Purchaser Claim - This claim was initially filed for $463.58mm on behalf of a class of US retail purchasers of packaged ice.  The applicants have entered into a settlement agreement for a maximum of $4.15mm. Next steps include the issuance of an approval order on a final basis this month and the claims deadline for the class of June 12 2014.  Due to the nature of the claim process (the need to submit receipts for the number of packaged ice bags you previously bought), I expect total claims to be less than the maximum $4.15mm.

 McNulty Claim – McNulty was a former employee who filed a claim $13.61mm for "blackballing him from the industry".  This claim was disallowed on Sept 12 2013.  McNulty filed a dispute notice on Sept 19 2013.  The monitor submitted the claim to the claims officer for adjudication on Nov 22 2013.  This claim is currently unresolved.  During the Feb 5 2014 court hearing, it was revealed that discussions are productive and this claim could get settled soon. I expect this claim to ultimately be disallowed or settled for a nominal amount.

Peggy Johnson Claim - This $12.259mm claim is made up of $34,000 for royalties on the trade name "Arctic Glacier", $10.5mm for alleged termination of the royalty agreement, $500k for alleged extinguishment of the license, plus interest.  All of these claims except the $34k were disallowed on Apr 12 2013. On May 2 2013 a dispute notice was filed. On Aug 19 2013 it went to the claims officer for adjudication. Unfortunately the hearing is not until fall 2014 and therefore this is the gating factor on the final distribution to unitholders. I expect this claim to ultimately be disallowed or settled for a nominal amount. 

Other – There are $718k of disallowed claims where the dispute period had not expired as of Jan 29 2014.  $500k of this amount recently expired in early Feb.  There is also a $2.194mm claim for California tax in which AGUNF is indemnified and will not absorb any costs.

Timing

During the Feb 5 2014 court hearing, the monitor revealed that it is putting together a plan of arrangement in order to distribute cash in the estate to creditors and unitholders as soon as possible.  The monitor estimates that it will have this plan of arrangement ready by late March / early April 2014, with a vote 21-30 days after filing of the plan.  I assume an interim distribution of $0.15 could be paid out in the summer with the remainder by year end.

Risks

 
More cash leaving estate than expected (higher settlement costs for remaining unsettled claims).  Distributions taking too long (as they always seem to).  Plan of Arrangement gets screwed up as this is an income trust (which could make it weird).
 
 
Conclusion

This is a low-risk workout with upside of 20%-30% as cash disbursements are made over the next year.  Assuming an interim distribution in summer and final distribution by year end gives an estimated IRR of >35%.

Bonus

The units also trade in Canada under AG-U.  For some odd reason you can usually buy them cheaper there.  So if you want to save half a penny, buy up north.
 
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

- Filing of plan of arrangement
- Cash distribution to unitholders
    sort by   Expand   New

    Description

    Workout liquidation play with 20%-30% upside and cash distributions to be paid out to unitholders this year.  The units currently trade at $0.1945 for a market cap of $68.7mm. I believe we will see distributions of $0.23 - $0.25 per unit over the next year as the liquidation completes. The units are surprisingly liquid with a few large funds establishing meaningful positions in the name. 

    Overview

    Arctic Glacier Income Fund (OTC: AGUNF, CNQ: AG.UN) is an income trust that is currently liquidating under creditor protection.  The company used to have a packaged ice manufacturing and distribution business which was sold to HIG Capital in 2012.  The estate is sitting on US$118.1mm cash with proven claims of about $34mm (40% of which are in Canadian dollars aka the Northern Peso).  Most claims are settled and the monitor is putting together a plan of arrangement to distribute the proceeds.  An overview of the current situation is provided in the 14th report of the monitor: http://www.amcanadadocs.com/arcticglacier/documents/Fourteenth%20Report%20of%20the%20Monitor%20(January%2030%202014).pdf

    Background

    February 22 2012 – Files for CCAA and Chapter 15

    June 8 2012 – Sells operating business to H.I.G. Capital for $434.5mm

    September 5 2012 – Establishes claims process

    October 31 2012 – Claims bar date

    Late March / Early April 2014 – Will establish plan or arrangement in order to effectuate distributions to creditors and unitholders

    Valuation
     
        Mid High Low   Notes
    Assets          
      Cash $118.1 $118.1 $118.1   As at Jan 29 2014
      Tax Receivable $1.6 $1.6 $1.6   US tax refunds remaining
                 
    Liabilities          
      Change of Control Payments -$9.9 -$9.9 -$9.9   ~C$11mm
      Direct Purchasers Settlement -$10.0 -$10.0 -$10.0   US$10mm
      DOJ Payment -$7.1 -$7.1 -$7.1   Plea agreement entered between   DOJ in which AG agreed to pay US$9mm over 5 years ($2mm has been paid);   Interest accrues at 0.34%;
      Indirect Purchaser Settlement (estimate) -$3.1 -$1.0 -$4.2   max settlement amount of   $3.95mm,  Class Counsel Charge of   $200,000, resulting in a total maximum estate outlay of $4.15 million. 
      Professional Fees (estimate) -$1.5 -$1.2 -$3.0    
      Retail Purchasers Payment -$1.8 -$1.8 -$1.8   13th Monitors report: Canadian   Direct Purchaser Claim has been accepted as filed in the amount of CDN$2   million;
      Interest Payable -$1.0 -$0.5 -$1.7   Estimate - Not yet   established;  Assume 3%-5%, accrual of   6-12 months
      Total Liabilities -$34.5 -$31.6 -$37.7   Total proven claims of $34.495mm   as at Jan 29 2014
                 
      Cash Available to Unitholders $85.2 $88.2 $82.0    
      Shares O/S 353.32 353.32 353.32    
                 
      Estimated Liquidation Value (US$) $0.241 $0.250 $0.232    
      AGUNF US Equity $0.195 $0.195 $0.195    
      Estimated Return 24% 28% 19%    

    AGUNF has $118mm in cash and $1.6mm in tax receivables.  I estimate $32mm - $38mm will get distributed to claimants leaving $82mm - $88mm to unitholders, or $0.23 - $0.25 per unit.

    Unsettled Claims (p.7 of 14th report of monitor)

    Indirect Purchaser Claim - This claim was initially filed for $463.58mm on behalf of a class of US retail purchasers of packaged ice.  The applicants have entered into a settlement agreement for a maximum of $4.15mm. Next steps include the issuance of an approval order on a final basis this month and the claims deadline for the class of June 12 2014.  Due to the nature of the claim process (the need to submit receipts for the number of packaged ice bags you previously bought), I expect total claims to be less than the maximum $4.15mm.

     McNulty Claim – McNulty was a former employee who filed a claim $13.61mm for "blackballing him from the industry".  This claim was disallowed on Sept 12 2013.  McNulty filed a dispute notice on Sept 19 2013.  The monitor submitted the claim to the claims officer for adjudication on Nov 22 2013.  This claim is currently unresolved.  During the Feb 5 2014 court hearing, it was revealed that discussions are productive and this claim could get settled soon. I expect this claim to ultimately be disallowed or settled for a nominal amount.

    Peggy Johnson Claim - This $12.259mm claim is made up of $34,000 for royalties on the trade name "Arctic Glacier", $10.5mm for alleged termination of the royalty agreement, $500k for alleged extinguishment of the license, plus interest.  All of these claims except the $34k were disallowed on Apr 12 2013. On May 2 2013 a dispute notice was filed. On Aug 19 2013 it went to the claims officer for adjudication. Unfortunately the hearing is not until fall 2014 and therefore this is the gating factor on the final distribution to unitholders. I expect this claim to ultimately be disallowed or settled for a nominal amount. 

    Other – There are $718k of disallowed claims where the dispute period had not expired as of Jan 29 2014.  $500k of this amount recently expired in early Feb.  There is also a $2.194mm claim for California tax in which AGUNF is indemnified and will not absorb any costs.

    Timing

    During the Feb 5 2014 court hearing, the monitor revealed that it is putting together a plan of arrangement in order to distribute cash in the estate to creditors and unitholders as soon as possible.  The monitor estimates that it will have this plan of arrangement ready by late March / early April 2014, with a vote 21-30 days after filing of the plan.  I assume an interim distribution of $0.15 could be paid out in the summer with the remainder by year end.

    Risks

     
    More cash leaving estate than expected (higher settlement costs for remaining unsettled claims).  Distributions taking too long (as they always seem to).  Plan of Arrangement gets screwed up as this is an income trust (which could make it weird).
     
     
    Conclusion

    This is a low-risk workout with upside of 20%-30% as cash disbursements are made over the next year.  Assuming an interim distribution in summer and final distribution by year end gives an estimated IRR of >35%.

    Bonus

    The units also trade in Canada under AG-U.  For some odd reason you can usually buy them cheaper there.  So if you want to save half a penny, buy up north.
     
    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    - Filing of plan of arrangement
    - Cash distribution to unitholders

    Messages


    SubjectRE: Feedback
    Entry02/06/2014 01:08 PM
    Membermpk391
    keep 'em coming

    Subjectpotential hold backs?
    Entry02/07/2014 10:24 AM
    Memberdman976
    PVMCF (an old Canadian liquidation) finally made a distribution but ended up withholding 25%.  Will have to claim it back through tax returns. If same here, not as juicy?

    SubjectRE: Feedback
    Entry02/07/2014 10:28 AM
    Memberdman976
    yes, we like these liquidation plays too.

    SubjectRE: RE: potential hold backs?
    Entry02/19/2014 02:40 PM
    Membermpk391
    JetsFan-  I am wondering if there might be a holdback to cover the cost of tying up any legal loose-ends that come up post distribution (ie lawsuits, etc.).  these types of holdbacks are common in US liquidations.  Not sure what is typical for Canadian liquidations.
     
    I'm guessing that's what dman976 was referring to, as opposed to withholding taxes.  (dman please correct me if I'm wrong!)

    SubjectRE: RE: Questions
    Entry02/20/2014 03:55 AM
    Membervalue_31
    JetsFan,

    Regarding point 3 on interest is there a requirement in a CCAA that unsecured creditors accrue interest (i.e. claims that in the ordinary course would not accrue interest unlike debt.  For example in the case of AGIL CoC payments, Legal Settlements (Direct/Indirect Purcahsers Settlement), etc.  If yes, does interest accrue from the date the claim was accepted by the Monitor or some other date (e.g. Claims Bar Date)?
     
    Thanks.  
       

    SubjectRE: Update on liquidation
    Entry06/05/2014 10:25 AM
    Membervalue_31
    JetsFan, 
     
    Surprising that the unit price has been weak post release of the 15th report and details of the Plan. Any thoughts on what's driven that? 

    Also, do you have any thoughts on what the withholding tax (or other tax) situation is likely to be here?  Is there value leakage from taxes or other witholdings on distributions? 
     
    Thanks

    SubjectRE: RE: RE: Update on liquidation
    Entry06/05/2014 02:42 PM
    Membervalue_31
    Both the Johnson and McNulty claims seem absurd (totally agree on Johnson btw).  
     
    The $10m admin holdback looked uber conservative but I imagine that this can be reduced (probably materially) once the Jonhson & McNulty claims have been dealt with (my interpretation was a decent chunk of this related to unknowns re: costs etc. for these two matters).  You might have a different interpretation? 
     
    Any thoughts on when these two claims get resolved?  Is YE2014 too agressive? (at least there is a timetable for Jonhson, whereas McNulty seems to be going nowhere quickly ...)    

    SubjectRE: AGUNF update
    Entry08/13/2014 12:03 PM
    Membervalue_31
    I agree with your sentiments and am surprised that the reaction to this news has not been more positive - the combination of (i) higher initial distribution / IRR; (ii) tighter range of potential outcomes / thinner tails; and (iii) higher likelihood that the admin reserve gets decreased / not fully utilized seems more positive than the stock price move would suggest.  
     
    The only outstanding question I have on this is what the tax (withholding & other) might be.  Haven't seen this addressed in any of the documents yet.  Have you got any updated thoughts / perspectives on this? 
     
     

    SubjectRe: Initial distribution declared
    Entry01/22/2015 01:19 PM
    Memberdr123

    Aside from the Monitor disallowing the Mcnulty claim, why do you believe the Mcnulty claim will be settled for a nominal sum within 5 months?


    SubjectRe: Re: Re: Re: Initial distribution declared
    Entry01/22/2015 01:39 PM
    MemberGideonMagnus

    This is the PR I found through Google search. It has the odd beginning that doesn't appear in yours.

    http://www.stockwatch.com/News/Item.aspx?bid=Z-C:AG-2245662&symbol=AG&region=C


    SubjectRe: Re: Re: Initial distribution declared
    Entry01/22/2015 02:14 PM
    Memberdr123

    Thanks for sharing your perspective. 

    I tend to agree with you based on the Monitor disallowing the entire claim.

    As I believe the Monitor has little economic incentive to disallow the entire claim, and given the Monitor reviewed it extensively with his own counsel and Arctic's US counsel (and perhaps Arctic's Canadian counsel), seems that 3-4 (Monitor, Monitor counsel, US Arctic counsel, and Canadian Arctic counsel) different sets of objective parties concluded Mcnulty's claim lacks any merit. 

    The reward here boils down to whether that conclusion is correct and how long until the claim goes away. 

    How can I listen to the hearings?


    SubjectRe: Re: Re: Re: Re: Initial distribution declared
    Entry01/22/2015 02:52 PM
    Memberdr123

    I will contact Josh, thanks for the tip. 

    Given your belief in the ridiculousness of the claim, should the Monitor or Arctic Counsel dispute Judge Spivak's denial of Arctic's counsel's request to reimburse the Monitor and Arctic for the cost of this nuisance?

    If Mcnulty fears even a small chance of losing and dealing with a large legal bill to reimburse us, perhaps he would settle more quickly

    Aside from what is in the Monitor's reports, what developments or aspects regarding the Mcnulty claim convince you it is ridiculous?

     


    SubjectRe: Distribution update
    Entry01/28/2015 07:22 PM
    Memberdr123

    Both FINRA and the SEC state that if the dividend is greater than 25% of the stock price, the ex-dividend date is one day after the dividend is paid. 

    http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9651

    http://www.sec.gov/answers/dividen.htm

     

     

     


    SubjectRe: Re: Distribution update
    Entry01/28/2015 10:33 PM
    MemberGideonMagnus

    I have learned, fortunately from mostly others experience, to never assume an ex-date until it is posted and when it comes to micro-cap pink sheet liquidations, just stop trading it anytime close to a pending distribution. You may miss out on some good opportunities, but you won't get blindsided like this. Not worth the distress, even if it is eventually made right.


    SubjectRe: Distribution update
    Entry01/29/2015 02:56 PM
    Memberdr123

    The record date of Dec 18, 2014 was released in a news release via Sedar on Dec 15 2014 (you mention it being released only on January 22, 2015 in comment #46).

    I just did not think this record date mattered given the FINRA rule that the ex-dividend date is the day after the payable date when the dividend exceeds 25% of stock price. 

     

     


    SubjectRe: Re: Re: Distribution update
    Entry01/29/2015 03:36 PM
    Memberdr123

    Good point


    SubjectJetsFan: thanks
    Entry01/30/2015 12:27 AM
    Memberdr123

    I deeply appreciate your help and hope I can be as helpful in the future

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