Author Topic: SFK pulp  (Read 104231 times)

alertmeipp

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SFK pulp
« on: May 04, 2009, 11:15:12 AM »
SFK trading down to 33 cents due to ABH contract cancellation.

the SFK convertible bond are trading at 47 cents on a dollar - providing close to 15% yield...and higher yield if you hold it thru maturity.

I bought some bond at 40's...


ubuy2wron

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Re: SFK pulp
« Reply #1 on: May 22, 2009, 03:44:16 PM »
The debs are trading @ 33 cents looks like another disaster to me. Abitibi ,Brick, Sfk, CGS thats 4 zeros I know the game is not over as Prem is likely to end up with controlling positions in all of these but hopefully there are some lessons to be learned here

alertmeipp

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Re: SFK pulp
« Reply #2 on: May 22, 2009, 04:10:08 PM »
volume is tiny... so does not worry me yet..

benhacker

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Re: SFK pulp
« Reply #3 on: May 22, 2009, 05:32:57 PM »
While I think wipeout risk is real.  The risk reward at $0.30 seems clearly positive.  I took a small position this morning at the open.

We shall see.

Ben
Ben Hacker
Beaverton, Oregon - USA

oldye

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Re: SFK pulp
« Reply #4 on: May 23, 2009, 12:11:35 PM »
http://nbbusinessjournal.canadaeast.com/journal/article/676338

"Justice Daniele Mayrand said that while the termination of the contract may force negotiations, there is nothing illegal in such an effort.

"SFK's situation isn't gleaming, but it is more robust than Abitibi's," she wrote in her ruling, noting that SFK has twice suspended its St-Felicien operations since December.

But she disagreed with SFK's assertion that Abitibi's $12.2-million annual loss from the contract represented "a drop in the bucket" for the large company."

 ??? ??? ???  Is breaking a contract is not illegal in Canada? or is it somehow contingent on whether you keep your mills open when your order book is completely out of wack?   Its hidden somewhere in the MD&A but they now have over 120 million dollars worth of unsold inventory sitting around...my guess is that they're down to something like 10 million in cash and they've already borrowed 20 million dollars so far this year from their credit lines just to keep operations going. 


That 12.2 million dollar loss is obviously a gain for SFK, can someone please explain to me why the financial condition of either company has anything to do with contract law? 

SharperDingaan

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Re: SFK pulp
« Reply #5 on: May 23, 2009, 06:32:02 PM »

When ABH went into CCRA, SFKs remaining contracted $20/ton discount became an unsecured liability. SFK essentially lines up with every other ABH creditor, in the hope of geting an eventual payout of cents on the dollar. ABH is one of the 'special' Quebecois coys, has a damaged reputation & is trying to offer a huge volume at spot, in a down market. A deal will get down, but expect it to be somewhat controversial - & convoluted.

The deb pricing essentially assumes the wipe-out of all existing equity & the liquidition of all 3 plants for scrap, net of costs. Most would think that a more realistic outcome, would be PIK interest payments and some kind of negotiated debt to debt & equity conversion.

Re disclosure. We hold long positions in both the deb & the common

SD
 

ubuy2wron

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Re: SFK pulp
« Reply #6 on: May 25, 2009, 09:07:37 AM »
With the currency weakening the numbers are probably about to get decidedly ugly. A refinancing at least is required if the reductions in the senior credit  are more than 20 million then equity does not exist so a pik payment is like getting an interest payment in GM shares if you are a GM creditor. GM old shares have pretty much zero value new shares will likely have substantial value. It really is up to Prem and the banks how this deal is sorted out he pretty much has all the cards as he is driving the Abitibi deal and soon will be driving the SFK deal. With FFH trading at a discount to bv the low hanging fruit is just buy FFH and let Prem and the mkt sort out the SFK restrucuring.  I have not seen Prem buying any more SFK nor have I seen any insiders rushing out to buy any paper . In the pulp and paper business it seems that tissue and cardboard are about the only spaces that really have any legs long term the parts of the industry that are selling into anything that has to do with print are facing the same bleak long term prospects there are cyclical issues overlaying secular issues and they are both awfull for a lot of players. You are right dingaan the debs are trading for probably liquidation values but are not many pulp and paper properties in fact going to be sold for scrap because that is the only thing that will bring the market back into supply demand balance.

Viking

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Re: SFK pulp
« Reply #7 on: May 25, 2009, 09:56:55 AM »
With the 'black tar' subsidy that US pulp producers are currently getting and the CAN$ close to $0.90US the Canadian pulp producers have to be a little shell shocked.

SFK is a great company (as is Canfor Pulp). Goes to show that just because you have a strong business model/good management and are well run that you can't get gorged by a partner or global events... I will be sitting this one out, but believe pulp will be a solid investment at some point in the next 12 to 24 months.

SharperDingaan

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Re: SFK pulp
« Reply #8 on: May 30, 2009, 01:04:48 PM »

In recognition to some of the other boardmembers following this security,
you might want to consider hedging some common against the debs.

We know that SFK's CF is getting stressed, the debs are deep underwater, the conversion price is far out of the money, & the chip agreement is triping indenture covenants. There are various possibilities, but perhaps some of the more prominent might be;

1) The debs extend the maturity & accept PIK interest (in deb) at the same rate for a period of 'X' years, in return for a re-priced conversion at around $1.00 (2-3x current market). Certainty returns, CF significantly benefits, the deb price rises, but there's a material deferred dilution.

2)The debs & accumulated interest exchange into new longer term debs at a higher rate - and common. Retiring the old debs produces a material gain, & a portion of that gain becomes attributable to the newly issued common. Certainty returns, CF benefits less signifantly, BS strengthens, the new debs value at about the MV of the old debs, & there's material & immediate dilution. There may also be a share consolidation.

3) The debs & accumulated interest exchange into new common, and shares are consolidated on a 2or3:1 basis. Retiring the old debs produces a material gain, wholly attributed to the newly issued common. Certainty returns, CF significantly benefits, BS materially strengthens, but there is massive dilution. Deb holders essentially own the company. There may also be a chips related acquisition.

In all cases we get a much stronger company - but it gets progressively harder on the existing shareholder. Something to consider.

This is not intended as a solicitation.

SD

Cardboard

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Re: SFK pulp
« Reply #9 on: May 30, 2009, 04:34:35 PM »
I am not sure what you mean by hedging SD. Buying the convertible debentures and shorting the common at $0.27? Shares are simply not available to short.

Now regarding the convertible debentures, I am not sure that the financial engineering that you proposed will do much for SFK. This company is showing annualized negative cash flow of around $17 million. Even if the convertible debentures were not requiring any interest payment, this would only save $3.6 million a year. I understand that there was a massive amount of downtime taken in the first quarter to align their production with demand, but remember that cash flow removes depreciation which is a very large component of fixed charges.

The ones who will be calling the shots here are the owner of the credit facilities if interest or principal are not paid per schedule. They are the ones who will be telling the jokers at SFK how they will be getting paid back.

To avoid this fate, they need to find a way to slash costs on a grand scale. And even if the company is financially restructured with the common losing everything and the convertible owners retaining something, they are likely to lose it all down the road unless the root cause or costs is fixed. Tembec is a great case.

Disclosure: I own a small position in SFK.UN and debating if I should simply sit and gamble with it or take whatever is left to invest in more promising ideas.

Cardboard