|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||47||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
|Entry||08/06/2007 11:47 AM|
Having recently earned my diploma in REIT liquidity from the school of hard knocks, let me pose some questions:
1. Where did you get the $690 million of agency securities?
2. Repo Agreement - It is really important to know what they have repo'ed because the agreements are subject to margin calls. Any way to get certainty on what the collateral is?
3. With AHR below book value and the CDO/MBS market effectively closed, how much capacity do they have on the credit facilities and who are the lenders?
4. Does Blackrock (not Blackstone) hold any of Anthracite's debt securities? Given that the preferreds are such a thin sliver of equity relative to the common, it seems that preferred and common are tied together. Either they both survive or they both are zeroes. If Blackrock is sitting on debt securities, they may do better by making sure the equity holders get nothing.
5. Since a large portion of their assets are "held-for-sale," they will be subject to mark-to-market hits. How big a mark down to their book value can they absorb?
|Entry||08/06/2007 07:06 PM|
Hi, David --
Sorry for dragging your name into it, and thanks for the (as always good) questions.
1:> Where did you get the $690 million of agency securities?
Darned good question and I umm, don't know. I see $590MM from the latest 10Q and the Jeffries presentation. I assume $690 is a typo/thinko for $590MM.
2:> Any way to get certainty on what the [$690MM of repo] collateral is?
As above, I don't think I'm going to find the missing $100MM. AHR is not a natural holder of RMBS, so I imagine that they repo'd that $590MM. The other $100MM? I don't know exactly, "stuff that people will let you repo" is as close as I can come.
3:> how much capacity do they have on the credit facilities and who are the lenders?
Rrrmmm ... we're a bit at cross purposes here. Let me turn the question around. Why do they need any capacity, and who cares (other than another question we'll get to in a bit) who the lenders are? It's not like they have to issue a CDO by September or die.
4:> 4. Does Blackrock (not Blackstone)
Thanks, David, I guess that doesn't exactly help the credibility of the write-up ... at least I got it right the first couple of times!
> hold any of Anthracite's debt securities?
There's no mention of this under "related party dealings".
> Given that the preferreds are such a thin sliver of equity relative to the common, [...] Either they both survive or they both are zeroes.
I hear that, which is why doing a straight capital structure arb is maybe not such a great idea. On a going-concern basis, the preferred is appealing because -- look, the last common dividend was $0.30. Could the next one be $0.15? Sure. If that happens, I'd guess that the common goes down and the preferred stays where it is, maybe even goes up if people decide that this is not a zero.
5:> Since a large portion of their assets are "held-for-sale," they will be subject to mark-to-market hits. How big a mark down to their book value can they absorb?
At the moment there is no market for this stuff. Back in the old days, they used to value their securities by calling around and getting quotes. That's a darned conservative way of doing things, because nobody's going to give you a reasonable quote on something that,
A: They can't sell to anybody else, and
B: They sure as hell don't want to buy from AHR because AHR has all the informational advantages.
Say they still follow the same practice and call around and get "no bid" and mark everything down to zero. Shucks, maybe they wind up losing $8/share (made up number). So? This stuff throws off cash or it doesn't. It's kind of like asking about the MTM value of mine. After you've dug the damned thing, it's all about cashflow and not about book or GAAP profits.
|Entry||08/06/2007 08:02 PM|
Hi, guys --
I suddenly rembered that this is the "Value Investors Club", not the "Deranged Opinions Club". At least I didn't get off on one of my, "How Italy Could Have Won World War II" rants.
1: I don't know what CRE defaults are going to be going forward -- OK, I do, higher than recently -- but the last few years have been extremely kind. These favorable trends have not been evidenced in AHR's financials or dividends. They might be bad operators, they might be reserving, they might be diversifying -- a combination of the last two makes the most sense.
2: All I'm saying here is that, when they release their financials on Wednesday, they won't have blown up, and I expect some short term relief rally as a result.
|Entry||08/06/2007 08:13 PM|
|Last week this company said everything was fine and that it didn't have to suspend divvies.|
|Subject||Caution Is Advisable|
|Entry||08/06/2007 08:29 PM|
Hi, Issambres --
I know nothing about LUM and not as much as I'd like to about AHR, but my limited understanding is that one,
- Was _hoping_ to sell stuff into a securitization
, while the other
- Had _already_ sold it's stuff.
AHR might well slash or omit the common or preferred dividends. They might need to raise capital.
I don't see how they go belly up due to margin calls.
|Entry||08/06/2007 08:31 PM|
Thanks for the responses.
I want to follow-up with the short-term borrowings because LUM seized up today in similar fashion to AHM. If AHR can survive this panic, I think this is a terrific idea but I have no feel for the "IF" part.
The reason for asking about the repo collateral is to understand the impact to AHR. Repo financing is the weakest form of financing, and one where the lender is most likely to have requirements if the collateral's value goes down. If AHR had to post more margin, the likely source would be a credit line.
So let's talk about the credit lines. These are the last sources of capital for AHR, as they can't raise equity or debt from the capital markets right now. If the credit lines get reduced or pulled, AHR is in a bind. Having lots of capacity on their credit facilities gives AHR a lot of flexibility to survive the storm.
I hear you about vagaries of MTM, but it is an important issue. Most credit facilities have a minimum net worth covenant. As of 3/31/07, AHR had about $821 of investment grade (IG) CMBS and $793 million of non-investment grade suboridnated debt. If they took 5% MTM hit on the IG stuff and 10% on the non-IG stuff, that's a $120 million hit. All of a sudden, those minimum net worth covenants start looming.
Here's how the AHM and LUM implosions occurred. First, their repo collateral got MTM'ed down, resulting in a margin call. They borrowed money from the credit facility to fund the margin call. The MTM's however lowered networth, causing a margin call from the credit facility lenders. The kindness of strangers can disappear quickly.
If you had lost money on AHM, I'm sure you want to know the answers to these questions, too. So don't take my questions as an attack on your idea. I'm interested but a little gun-shy. I think there is panic in the markets that are causing irrational discounts to stocks, so looking through what everyone else is puking out is a good place to be looking. Someone is going to profit from all this dislocation, all they have to do is survive the near-term.
|Entry||08/06/2007 08:47 PM|
Almost half of LUM's debt was financed using repos, commercial paper and warehouse lines, compared to about 18% at AHR. That is an important distinction. I think 50% short-term financing for non-agency securities is too much, but am not sure where 18% fits into the picture.
|Subject||Re: Follow ups|
|Entry||08/06/2007 09:12 PM|
Hi, David --
Gee, at some point I should really make myself some dinner instead of just sitting here knocking back Brooklyn Lagers and talking about stocks with strangers, but --
> Repo financing is the weakest form of financing, and one where the lender is most likely to have requirements if the collateral's value goes down.
> AHR [...] can't raise equity or debt from the capital markets right now
Huh? Why not? _Accretive_ equity issuance is out of the question right now, but "pay a mighty high price to save your ass" is not. If you own the preferred, you hope that (as seems likely) the mighty high price comes out the common's ass, and not yours.
> Most credit facilities have a minimum net worth covenant. As of 3/31/07, AHR had about $821 of investment grade (IG) CMBS and $793 million of non-investment grade suboridnated debt. If they took 5% MTM hit on the IG stuff and 10% on the non-IG stuff, that's a $120 million hit. All of a sudden, those minimum net worth covenants start looming.
Urrggghh .... this all starts off hard to follow and AHR's "diversification" efforts don't make it any easier for me. When you say, "$821 of IG CMBS", are you talking about the legal fiction that they own the senior classes and have issued debt to finance it?
This is probably not helpful, but thanks to the Brooklyn Lagers and no dinner, maybe the best I can do right now:
1: AHR owns a bunch of subordinated pieces of ABS CDOs. "Debt" associated with this is a fiction. "Leverage" is not, in the sense that they're going to take a much harder hit from a default than the senior calss, but they don't actually owe any money and as long as these things keep throwing off enough cash to pay the rent and the phone bill, there are no liquidity issues.
2: AHR has two forms of what I'll call "non-core" debt:
A: They've got some stuff out on repo. This just has to be the agency stuff because it more or less matches up and, you know, nobody's going to let them repo the "core" assets anyway.How much is it again? $600MM? Take a 10% hit against that. NB, a 10% hit against anything you can actually repo is huge.
B: Real round numbers, there was something like $200MM on credit lines financing Lord knows what, take a 25% hit against that, which again is pretty, you know, big, for anything that people would let you finance that way.
Ignore that they might have stuff they probably could sell but don't want to. Maybe there's a $100MM liquidity problem out there. I don't believe this to be the case but ... The difference here is that the liquidity problem is "non-core", whereas with AHM and for all I know LUM, the liquidity problem was "All there is".
I've suggested that Blackboogers -- whatever their name is, I can never get it right -- could provide $100MM in liquidity at a net cost of less than the reputational hit should one of their managed funds blow up.
Liquidity is a real tail risk here. Graphically,
- CRE Defaults
- Getting screwed because you bought the preferred
|Subject||Dinner Will Have To Wait|
|Entry||08/06/2007 09:39 PM|
Hi, guys --
Getting to the nub on liquidity:
I sure _hope_ these things are trading where they are because of liquidity fears, and not because of deeply thought out and passionately held views about CRE defaults.
The company has _very recently_ raised:
$87.5MM long term unsecured debt
-Too lazy to make sure, but I think there's also E50MM of long term debt too.
-- like in the last 4 months. Now, maybe they said, "Geez, do you know how much AAA Alt-A mortgages you could control with this?" And went out and bought a bunch of 'em.
I sure hope not.
Like I said before, these guys came through '98. If this turns out to be a zero, I hope it's the old fashioned way -- "We lent money to people who didn't pay it back" -- instead of the new fashioned way -- "We borrowed money we couldn't pay back."
|Subject||Blind Pigs And Acorns|
|Entry||08/08/2007 06:16 PM|
Hi, guys --
Well, that one worked out, no doubt helped along a bit by today's buying panic in anything that -- oh so long ago! like Monday! -- seemed "risky".
I'd be surprised if there isn't another chance to take a crack at this or the common. Longer term,
1: Par is a dream without some help from the Fed,
2: But in a non-sucking CRE market, this could drift up to $20-$22 over the next year, which is not a bad total return.
3: I think the common has interesting speculative possibilities.
|Entry||08/08/2007 11:57 PM|
|Good call, Bowd.|
|Subject||Stuff I missed/didn't answer|
|Entry||08/11/2007 05:33 PM|
Hi, guys --
David101:> Most credit facilities have a minimum net worth covenant.
$500MM for AHR, vs. current shareholders equity of $800MM. Since they're marking this stuff to market, I'd expect book to be down at least 10% by the end of September, unless things turn around.
So there's some margin here, and I really think that, should it come to it, we'll see forbearance from the lenders 'cause it's not like they want to own this stuff.
Duff:> what do you tink about some of the others?
Me:> I don't really follow the space [...]I don't know if there's anything similar out there.
Unsurprisingly there are tons of comps. NCT is one.
|Entry||08/14/2007 06:10 PM|
Hi, guys --
Me:> I'd be surprised if there isn't another chance to take a crack at this
I think down 20% intra-day is a good opportunity for me to say, "Told you so."
|Entry||08/19/2007 09:20 PM|
Hi, Duff --
> NCT also has prefs. so does tma if you're feeling game.
There's tons of stuff to buy if the "Great Moderation" continues and recent financial dislocations don't feed back into the real economy.
Brad DeLong explains the Great Moderation well, and says bad things about Bush to boot, so let's let Google do the heavy lifting for those new to the GM concept:
I like the AHR securities because they're playing things real conservative.They're not looking to find a bottom; they're not looking for great deals, and they're not talking about buying back stock (like NCT). "Liquidity, liquidity, liquidity". They sold tons of agency stuff to raise cash, bailed out on some of their equity partnerships and are looking to bail out on more. Maybe there are great opportunities out there, but no falling knives, you know?
This is a virtue in a mortgage REIT (which they're not really, they've just "elected to be taxed as a REIT"), and to the extent that anyone's interested in the preferred, a double virtue.