December 16, 2022 - 11:09am EST by
2022 2023
Price: 0.23 EPS 0 0
Shares Out. (in M): 89 P/E 0 0
Market Cap (in $M): 20 P/FCF 0 0
Net Debt (in $M): -47 EBIT 0 0
TEV (in $M): -27 TEV/EBIT 0 0

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  • Liquidation


Here’s a little Hanukkah gelt for everyone before the holidays. This is as close to free money as I have seen in some time. PA only.


Trilogy is a wind-up play. The company intends to make a cash distribution next June that ranges from 23c a share to 31c a share. I believe it is very likely to be at the high end (or above) and the stub/shell value post distribution will trade for 5c a share. Therefore we are looking at downside of a flat return and upside of 56% (31+5 vs current 23 price) in a 6 month timeline. 


In any windup play I believe the important questions to answer are:


  1. What are the assets and are there risks in turning them to cash

  2. What is the burn before payout

  3. How likely is management to follow through with a distribution and shut down


I’ll tackle each in turn though this is as clean as it gets.


What is Trilogy?


Trilogy was a former spac (alignvest) that de-spaced in winter of 2017. The de-spacing event was to take an equity stake in Trilogy International (TRL). TRL was founded in 2005 by John Stanton, his wife Theresa Gillespie and Brad Horwitz. This is the team that grew Western Wireless into a large telco and ultimately sold subsidiary Voice Wireless to Deutsche Telecom for $30 billion. This was the start of what is now known as T-Mobile. John Stanton became a billionaire in the process. 


The team figured they could replicate their success in smaller markets. TRL owned two assets, 2Degrees in NZ which is the 3rd largest mobile operator, and a Bolivian telco. In 2021 both assets were sold. The Bolivian assets were basically sold for 1$ while the NZ assets were sold for actual proceeds. In May 2022 the NZ asset sale closed and the BoD of TRL proposed to wind-up the company over time and distribute all proceeds to shareholders as a return of capital. The main distribution was done in June 2022 for $1.69. 


There was an escrow requirement for 1 year post NZ sale. Once this expires in May 2023, the company has recently said they intend to do a final distribution in June 2023 ranging from $15mm to $20mm USD, or 23c to 31c cad per share.


What are the assets and are there risks in turning them to cash?


This is a pretty simple B/S at this point. This is my summary from the Sept 30th financials:

Most of this is self explanatory. The only thing to discuss is the escrow. This was a standard escrow agreement related to the sale of the NZ assets. There is no performance requirement tied to the escrow. It is simply in place in case any liabilities pop up out of left field. The deal closed 6 months ago. When I spoke to the CFO in late November, he confirmed to me they see nothing today that would not cause 100% of the escrow cash to be released in May. He also confirmed if they did identify anything they would have had to take an allowance on the balance sheet against the asset, which they have not done. Therefore I assign no discount to the Escrow cash.


The net result is there is currently 54c canadian of equity in the company today, with 3 quarters of corporate burn before the distribution in June.

What is the burn before payout?


In Q3 2022 the company took steps to bring down corporate expenses and minimize the burn, including firing most of the staff at headquarters. Just using the change in equity value from Q2 to Q3, the company burned $5.37mm during the quarter. In the Nov 14th press release, the company guided to a range of $15mm and $20mm USD as the expected payout in June. Here is how that looks on a quarterly burn basis. 



We can see at the low end the quarterly burn is just over 5mm per quarter. This makes no sense given the steps taken during Q3. The CFO also communicated that almost all the shut down costs were taken and accrued in Q3. The cash burn will ease. The high end of the range (31c a share cad) works out to $3.4mm burn per quarter. Much more reasonable. I also believe they may step down to $2mm in quarterly burn, which sees us with a 37c distribution in June (true upside plus stub value). 


TRL has followed up with concrete cost saving measures. Last week they announced a down listing from the TSX to the TSX-V to save money. This will also enable them to drop from 7 directors down to 3, to further cash preservation. 


The company will exist as a shell post distribution. A requirement of the deal is TRL must remain a legal entity for 6 years post close, so 5 years post June 2023. I have assumed they must leave $1mm per year in the shell for public company costs. The CFO confirmed this is a reasonable assumption.


Finally the shell will also have value to a company looking to go public via reverse takeover (very common in Canada). There will be NOLs left in the shell though we won’t know the number until year end financials are filed in March. I assume the shell will trade at 5c (4.5mm marketcap).

How likely is management to follow through with a distribution and shut down?


Here we have to look at the players involved. John Stanton is a billionaire, majority owner of the Seattle Mariners and is actively sitting on the boards of Microsoft and Costco and has been for a number of years. This is not a man who is looking to milk some stub for a director fee. His reputation is worth tens of millions or more. This is also a bit of a personal embarrassment and failure for the team given the share price move from $10 to $2 over the last 5 years, so I am sure they would like to wrap it up and move on.


They also distributed $1.69 in June 2022 so the distribution next June is simply a follow up.


The risks here of them not following through are miniscule.



On a 6 month timeline I believe we are looking at a return of 55%, upside of possibly 82% and downside of 0%. The opportunity exists because it is a microcap at year end where this is a stub for most investors who likely just want it off their books. The risks of the payout not occurring are low and this is one of the best risk-rewards I see in the market today.


Risks: Something coming out of left field and impacting the escrow payout.


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.


Escrow release in May 2023

Cash distribution June 2023

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