IRONCLAD PERFORMANCE WEAR ICPWQ
November 02, 2017 - 11:58am EST by
TheEnterprisingInvestor
2017 2018
Price: 0.10 EPS 0 0
Shares Out. (in M): 85 P/E 0 0
Market Cap (in $M): 9 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Personal Account Idea
  • Liquidation
  • Bankruptcy
  • Bankrupt Equity
 

Description

This is clearly a PA idea. 
 
Ironclad Performance Wear is a bankrupt maker of performance hand gloves, but what they did isn’t actually important anymore.
 
Ironclad declared bankruptcy a few months ago.  There were some accounting improprieties that led them to go non current on their financials.  One of their competitors, Radian’s Group, bought their debt from Capital One and forced a technical default.  Conveniently, Radian’s was there to be the stalking horse bidder.  Their bid was $15 or $20m depending on the outcome of something filed under seal with the court, either case there was projected to be a "substantial distribution to equity holders".  There was an auction to be held on Oct 30.  An auction for Ironclad’s business/assets was held on October 30th and Brighton Best came away the winner with a $25.25m bid.  The company hasn't made an announcement or 8k'd it yet, but it did appear on the docket yesterday.  There's no host site for the bankruptcy, so you have to go through pacer and pay 10c/sheet to download and follow.  
 
What matters from here on out is the closing of the sale and the winding down of Ironclad.  Remaining management, whose sole responsibility is to close the sale and return cash to shareholders, estimates $8-10m of liabilities in the filings to be paid out.  This seems to be corroborated by the 9/30 MOR which shows $9.2m of liabilities and $1.2m of cash.  We estimate another $1m or so of wind down costs plus what they owe their banker.  Craig Hallum gets a success fee for the auction closing above $20m, 2.5% of the amount $22.5m, 4.5% of the amount over.  So the success fee will be about $184k, plus the $275k base fee for $459k of fees to CH.  Radians, since they did not win the auction, is getting a $500k break fee.  
 
So in all we estimate there to be somewhere between $10m to $12m of costs associated with winding this down.  So there should be between $13.2 and $15.2m left for shareholders, against a share count of 85m.  So all in there’s between $0.155 and $0.179 left, against a current share price of $0.10.  The range provided looks to be primarily related to a Granger claim, which $180k will be paid from the purchase price, and another 820k set aside in addition to the purchase price by BBI, but in theory could be north of $1m.  The company has racked up losses over the years so those should shield taxes.  
 
The risk here is that the sale doesn’t close, but they vetted and approved the buyers for financial capability prior to the auction and should close early December.  At that point the assets will transfer, liabilities will be paid out and a plan of liquidation should be proposed.A secondary risk is distributing the cash takes a long time and eats the cash faster.  Since everyone is getting paid in full that shouldn't take a long time to sort out.  I feel like there’s pretty good cushion here and at 10c you are deep in the money.  
 
Full disclosure:  I own shares, mostly pre-auction
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

Sale closing

Liquidation

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