CIBER INC CBRIQ
June 05, 2017 - 10:44pm EST by
manny
2017 2018
Price: 0.10 EPS 0 0
Shares Out. (in M): 82 P/E 0 0
Market Cap (in $M): 8 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Bankruptcy
  • Discount to Liquidation Value
  • equity committee

Description

Ciber is a relatively straightforward bankruptcy liquidation, which is 95% wrapped up, and generally consists of cash to be distributed to shareholders.

While the idea is straightforward, the details are somewhat hard to dig up through the bankruptcy dockets.  In fact we spoke with a top 5 shareholder, who 1) "had never dealt with a bankruptcy", 2) didn't know the auction had taken place, and 3) certainly did not realize the potential for an equity distribution in this scenario.  So hence, I think there is logic as to why the opportunity exists. 

Note: a 4.5% ownership limitation (NOL-related) a week ago which would indicate bankruptcy professionals are aware there are going to be equity distributions coming in this case.

To piece together the relevant facts:

I reference the document #s on the docket here:

https://cases.primeclerk.com/CIBER/Home-DocketInfo

1) Asset Sale Proceeds/Consideration: Document #235.

Asset sale consideration (After a 3-person auction) is $91mn in cash + the assumption of $30mn in liabilities.  Note the assumed liabilities are almost all of the pre and post-petition operating liabilities.  This is a service-based business where employee and vendor continuity is critical hence the necessary assumption of operating liabilities.  There are <$11mn of unassumed liabilities, although we think these could be offset by cash generation before the close of the sale (which we've excluded at the moment to be conservative).

2) Unassumed Secured Debt: Document #14

This is a key piece of misunderstanding/sleuthing to put the pieces together here.  On page 193 of this motion, it indicates only $30mn of secured debt is outstanding on the petition date (early April).  The company hasn't filed SEC financials in over 6 months and has sold a number of businesses since the last 10Q so the previous debt balance of ~$45mn is stale.

This document also indicates the debtor is expected to burn around $5mn in the 5 week timeframe during the bankruptcy case.  The original DIP availability was around $41mn to accommodate this, however it has since been increased to $45mn as a result of slightly extended case closure timing.  We have been guided that the DIP us unlikely to be fully drawn once the dust settles so for conservatism would estimate $40-45mn of claim at this line item.

Note: this forecast also shows a $2mn debt of IBM Credit to include.

3) Other unassumed liabilities: Document #212

This document encompasses the broad financial statements of the debtor at the time of petition.  It shows the $30mn of secured claims (from above) on page 10 along with ~$36mn of unsecured claims. However, we can see that Ciber International is owed $1.5mn and Cibersites India $7.7mn (an entity which is part of the assets being purchased), both of which are intercompany, so the true external unsecured claims pool is <$30mn, which ties out exactly to the "assumed claims" numbers from above in the asset sale declaration.  In speaking with advisors to the debtor, they confirmed the above framework and that there were no other liabilities known to them.  Given the uncertainties involved in bankruptcies, we think a $1-5mn placeholder is more than conservative for a company of this size (a figure the advisors also thought was more than enough for any last minute payables that might creep into the picture).

4) Bankruptcy Expenses:

The DIP motion (#14) indicates around $5-6mn of professional fees expected.  This is included in the DIP Balance drawn.

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Summary:

Asset Sale Proceeds =  $91mn cash

Less: Secured Debt = $42-47mn

Less: Unassumed Claims = $11mn

Leaves: $33-38mn for equity

on 82mn shares

= .40-46c/share

Note: every $1mn in unexpected fees or claims = 1.2c/share;  We think the margin of safety is substantial even assuming some range of $1-5mn unanticipated costs/fees/claims.

We think the current share price (albeit clearly attracting interest due to recent volume increase) is simply inefficiently priced relative to the cash sitting in the company because of the lack of clear information around the facts above (which have to be pieced together from a number of sources).

Note: the 1st monthly operating report (April 30) hit the docket not long ago and confirmed a total of 88mn claims, of which 30mn are assumed, leaving (91-58)=33mn of proceeds net to equity.  We think >$8mn of claims are associated with intercompany payables to the Indian subsidiary which was sold, however it's complicated and speculative to go into.

 

 

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

Catalyst

Equity committee is likely and could be appointed any day.

The next monthly operating statement should make the above math abundantly clear to the market.

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