FREMONT GENERAL FINANCING I FMNPQ
June 07, 2010 - 10:08am EST by
nha855
2010 2011
Price: 21.80 EPS $0.00 $0.00
Shares Out. (in M): 4 P/E 0.0x 0.0x
Market Cap (in $M): 85 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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Description

This is the last day you can buy FMT Pfd (the TOPrS) and get a great deal. The situation is simple. On June 10, the confirmed bankruptcy plan will be effective and the 4-million shares of TOPrS will be exchanged for:
  • 1) $45 million cash ($11.25 per share)
  • 2) $39 million in 9% notes due 2016 ($9.75 per share)
  • 3) 21 million shares of FMNTQ (5.25 shares per preferred share or $4.20 at recent prices)

Add it all together and you get $25.20 vs the current $21.80 price or a 15.6% return for a week. The obvious risk here is that the bond does not trade to par. In that case, the current $21.80 price of the preferred implies you are paying $6.35 for the bond or 65% of face value for a yield to maturity of 18%. This will be the only debt on the company, which will have a net cash balance sheet.

Looks like a pretty simple (and very attractive) arbitrage to me. Thoughts?

Catalyst

Confirmed plan goes effective
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    Description

    This is the last day you can buy FMT Pfd (the TOPrS) and get a great deal. The situation is simple. On June 10, the confirmed bankruptcy plan will be effective and the 4-million shares of TOPrS will be exchanged for:

    Add it all together and you get $25.20 vs the current $21.80 price or a 15.6% return for a week. The obvious risk here is that the bond does not trade to par. In that case, the current $21.80 price of the preferred implies you are paying $6.35 for the bond or 65% of face value for a yield to maturity of 18%. This will be the only debt on the company, which will have a net cash balance sheet.

    Looks like a pretty simple (and very attractive) arbitrage to me. Thoughts?

    Catalyst

    Confirmed plan goes effective
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