Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 138148 times)

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #340 on: August 15, 2018, 07:59:32 AM »
I think the chance that the E prefs will be converted to common at $2 is growing. If that were to happen it would, obviously, not be good for the E holders. The common shares would lose some risk, but at the cost of losing a lot of the potential upside. The winner in this scenario would be the B and D prefs, which would be safer and not lose any upside.

There are circumstances, I think, in which that would be good for the common as well. It increases my base case NAVPS outlined above. It decreases my bull case/everything goes right NAVPS. But everything isn't going right!


Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #341 on: August 15, 2018, 08:09:07 AM »
I think the chance that the E prefs will be converted to common at $2 is growing. If that were to happen it would, obviously, not be good for the E holders. The common shares would lose some risk, but at the cost of losing a lot of the potential upside. The winner in this scenario would be the B and D prefs, which would be safer and not lose any upside.

There are circumstances, I think, in which that would be good for the common as well. It increases my base case NAVPS outlined above. It decreases my bull case/everything goes right NAVPS. But everything isn't going right!

The problems at Parq have added to the risk for the common and reduced the upside. I still think the common is a good bet. But I now believe that the B and D prefs are a better bet. You can get a double out of these and make 15% along the way with much less risk. It's hard for the common to compete with that IMO. When you throw in the growing possibility that the E prefs will be converted to common, it makes the case for the B and D even stronger. I own both the common and the prefs in about 30/70 ratio. I am pretty sure that if I didn't own any of it right now I'd only buy the prefs.

gokou3

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #342 on: August 15, 2018, 08:33:47 AM »
Given the company is lacking cash, I think it's quite possible that management will offer to redeem the E at a discount to par, like $18 per pref, in lieu of converting to the common.  This would lessen the dilution for Goodman and stick it to the preferred holders.

Maximu$

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #343 on: August 15, 2018, 09:07:39 AM »
I actually see Parq as an existential threat to DC.  If they continue, cash calls like we have seen the past few quarters could quickly deplete all of DC's liquid equity (assumes DPM is not to be sold due to upside) and then force the firesale of DC's less liquid assets.  This issue is compounded by the looming Pfd-E redemptions.  Options at this point include: sale to or partner with another company with cash to invest and/or sell Parq to preserve any existing value, and/or convert Pfd-E to common @ $2 (an easy win, but requires acceptance that DC is no longer what it was and $2 is a ceiling price for the shares over short to mid term until this mess of z-grade companies can be sold).  While an option, I do not see suspension of the Pfd Series 2,3 dividends as helpful toward a LT solution.  Why?  DC's credit profile would weaken considerably, making future capital raises more difficult and expensive, DC is trying to get back into resource focused money management business and how you treat OPM (incl. your Pfd shareholders) matters, and the benefit is illusory as DC's problems are structural and require decisive (and fast) structural changes as opposed to short term relief that does not address the core issues. 

Other options:  (i) Rights offering for common and Pfd shareholders ... cash goes up, cap structure stays same, no dilution; (ii) Goodmans offer to give up dual class structure ... DC shares take off upwards ... benefitting all, including Goodmans ... and raise more common, (iii) any others?

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #344 on: August 15, 2018, 10:38:48 AM »
I actually see Parq as an existential threat to DC.  If they continue, cash calls like we have seen the past few quarters could quickly deplete all of DC's liquid equity (assumes DPM is not to be sold due to upside) and then force the firesale of DC's less liquid assets.  This issue is compounded by the looming Pfd-E redemptions.  Options at this point include: sale to or partner with another company with cash to invest and/or sell Parq to preserve any existing value, and/or convert Pfd-E to common @ $2 (an easy win, but requires acceptance that DC is no longer what it was and $2 is a ceiling price for the shares over short to mid term until this mess of z-grade companies can be sold).  While an option, I do not see suspension of the Pfd Series 2,3 dividends as helpful toward a LT solution.  Why?  DC's credit profile would weaken considerably, making future capital raises more difficult and expensive, DC is trying to get back into resource focused money management business and how you treat OPM (incl. your Pfd shareholders) matters, and the benefit is illusory as DC's problems are structural and require decisive (and fast) structural changes as opposed to short term relief that does not address the core issues. 

Other options:  (i) Rights offering for common and Pfd shareholders ... cash goes up, cap structure stays same, no dilution; (ii) Goodmans offer to give up dual class structure ... DC shares take off upwards ... benefitting all, including Goodmans ... and raise more common, (iii) any others?

I agree about Parq. It needs to be fixed fast. Either through a full or partial sale and/or refinancing. They can't wait much longer. And that doesn't suggest that they will get great terms on any deal. This is the deal breaker for me. I am hiding out in the preferreds until there is more safety in the common.

doc75

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #345 on: August 15, 2018, 12:10:33 PM »
I think the chance that the E prefs will be converted to common at $2 is growing. If that were to happen it would, obviously, not be good for the E holders. The common shares would lose some risk, but at the cost of losing a lot of the potential upside. The winner in this scenario would be the B and D prefs, which would be safer and not lose any upside.

Jonathan's comments on the CC suggest to me that cash redemption of the Es is the least likely outcome.   The very poor Parq results put them in a much more serious liquidity crunch than I previously believed.  DPM won't be sold.   Parq looks like it will require substantial ongoing capital infusions.   If the Delonex drilling doesn't go well, then I think they'll  turn off the dividends on the prefs.

I missed what he said about the CRA tax issue.  I looked at the financials and it appears there could be a material charge there, but not quantifiable at this time?  Anyone have further insight?


sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #347 on: August 15, 2018, 12:45:34 PM »
I think the chance that the E prefs will be converted to common at $2 is growing. If that were to happen it would, obviously, not be good for the E holders. The common shares would lose some risk, but at the cost of losing a lot of the potential upside. The winner in this scenario would be the B and D prefs, which would be safer and not lose any upside.

Jonathan's comments on the CC suggest to me that cash redemption of the Es is the least likely outcome.   The very poor Parq results put them in a much more serious liquidity crunch than I previously believed.  DPM won't be sold.   Parq looks like it will require substantial ongoing capital infusions.   If the Delonex drilling doesn't go well, then I think they'll  turn off the dividends on the prefs.

I missed what he said about the CRA tax issue.  I looked at the financials and it appears there could be a material charge there, but not quantifiable at this time?  Anyone have further insight?

Many negatives in the quarter & on the call but there were some things that give me a glimmer of hope. At least the events at Parq are really forcing them to move on getting this cleaned up. Some of the positives on the CC were the acknowledgement of potential buyers for Blue Goose, "advanced stages" in negotiating with outside parties for solutions to Parq, moving portfolio down to 30 positions from 70 and "potential proceeds of $100mm to $200mm" from these sales, DPM doubling EBITDA over next year & Jonathan saying "at right price anything is for sale".

While the BC gaming industry is having a tough year, it seems as though Parq Casino is outperforming the others...

 And the casino part – there is no question that the casino industry if you look at the other participants in the BC industry they’re down on the table drop close to 20% year-to-date.

We’re actually up on the edge water because - with the same number of tables and the same slots but we’re up because it's in a much nicer building. But certainly we’re up in a really tough market.


Need to look further into the CRA filing - could it be a disallowance of the deduction amount on a large capital gain??  DC currently has the following tax loss carry forwards which could be very valuable assuming they begin to make money again...

At June 30, 2018, the Corporation had operating loss carry forwards of $527,656,000 (December 31, 2017 – $505,195,000) and capital loss carry forwards of $234,396,000 (December 31, 2017 – $231,918,000).

SafetyinNumbers

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #348 on: August 15, 2018, 02:33:19 PM »
I think they are going to use the conversion option as leverage on the DC.PR.E holders to extend their retraction feature again while keeping the coupon. Maybe they will even throw in a warrant again.

Basically, if preferred holders don't agree to terms, they will use their option to pay with shares which will materially hurt the preferred holders. If they agree to extend, they have a shot at getting their cash back in a few years and earning a reasonable return while they wait.

Dundee gets the benefit of having access to that capital for a few more years and does not dilute shareholders much.

It's a win-win versus paying all cash or diluting shareholders.

Top 5 positions: ELF IAM GCM.NT/GCM PIF EFR.DB

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #349 on: August 15, 2018, 02:50:44 PM »
I think the chance that the E prefs will be converted to common at $2 is growing. If that were to happen it would, obviously, not be good for the E holders. The common shares would lose some risk, but at the cost of losing a lot of the potential upside. The winner in this scenario would be the B and D prefs, which would be safer and not lose any upside.

Jonathan's comments on the CC suggest to me that cash redemption of the Es is the least likely outcome.   The very poor Parq results put them in a much more serious liquidity crunch than I previously believed.  DPM won't be sold.   Parq looks like it will require substantial ongoing capital infusions.   If the Delonex drilling doesn't go well, then I think they'll  turn off the dividends on the prefs.

I missed what he said about the CRA tax issue.  I looked at the financials and it appears there could be a material charge there, but not quantifiable at this time?  Anyone have further insight?

Many negatives in the quarter & on the call but there were some things that give me a glimmer of hope. At least the events at Parq are really forcing them to move on getting this cleaned up. Some of the positives on the CC were the acknowledgement of potential buyers for Blue Goose, "advanced stages" in negotiating with outside parties for solutions to Parq, moving portfolio down to 30 positions from 70 and "potential proceeds of $100mm to $200mm" from these sales, DPM doubling EBITDA over next year & Jonathan saying "at right price anything is for sale".

While the BC gaming industry is having a tough year, it seems as though Parq Casino is outperforming the others...

 And the casino part – there is no question that the casino industry if you look at the other participants in the BC industry they’re down on the table drop close to 20% year-to-date.

We’re actually up on the edge water because - with the same number of tables and the same slots but we’re up because it's in a much nicer building. But certainly we’re up in a really tough market.


Need to look further into the CRA filing - could it be a disallowance of the deduction amount on a large capital gain??  DC currently has the following tax loss carry forwards which could be very valuable assuming they begin to make money again...

At June 30, 2018, the Corporation had operating loss carry forwards of $527,656,000 (December 31, 2017 – $505,195,000) and capital loss carry forwards of $234,396,000 (December 31, 2017 – $231,918,000).

As someone who has owned both the common and the B/D prefs, I like to think about which offers the better risk adjusted return. As of now I feel that belongs to the prefs for the following reasons:

The B and D prefs have a potential upside of 2-2.5x from current prices around $9.40. I feel that to make a bet on the common you would need to have a reasonable expectation that 3x to 5x was possible, otherwise why choose the common over the preferred since the preferred is safer and pays a 15% dividend? Until problems with Parq materialized I felt that it was reasonable to think a 3x to 5x return was possible. But now with the Parq asset looking like a bust a large potential upside has been lost. Worse the cash flow problems stemming from the needs of Parq are making it more likely that the E prefs will be converted into common, which would take out an even larger part of the upside potential. At this stage I don't think the common offers enough of an upside advantage over the prefs to make it as good a bet.

Also, I figure even if things go well and it becomes clear that Dundee's NAV is solidifying on a decent number, say $6 per share, the stock is likely to trade at a large discount to that for a long time given the bad experience and doubts investors have about the company. So, it may not trade much above $3 even with a $6 NAV. If that happens the company would have ample opportunities to buy back cheap stock for a long time driving value growth. I would prefer to buy it then rather than now when there is so much uncertainty about it's ultimate value and the prefs are so cheap.