Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 172237 times)

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #350 on: August 15, 2018, 06:32:38 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.

I wonder if the E shares might start to sell off and reflect the risk of conversion?


petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #351 on: August 16, 2018, 02:21:21 AM »
My key takeaways from the call:

- DPM is going well and could be worth significantly more next year. It's big enough to move the needle significantly.
- They're clearly prepared to play hardball with the convertible prefs, which I regard as good news because it dramatically reduces liquidity risk.
- No real details on the portfolio review but the underlying commentary is positive. There's a steer to $100-200m of sales in 2H, not including DPM or UHIC. By definition that means liquifying a material of the undisclosed/private/hard-to-value holdings and if it happens it will harden up BV materially and remove liquidity risk. Interestingly they didn't explicitly exclude selling Parq, although they weren't asked. I think they also said that they have had interest in Blue Goose.
- Delonex drills first Chad well in 2H - potentially also hardens up BV (one way or the other!).
- They are clearly deep in the process of not only refinancing Parq (potentially with PIK flexibility) but also bringing in another capital provider with relevant skills to help ramp the business faster. That would presumably reduce Dundee's % stake but it might increase and harden up the value of the position. That said I don't really understand what skills they need given they have Marriott's support & systems already.
- I found it interesting that they reiterated long term ebitda guidance for Parq despite having written it down due to changes in long term forecasts. I take this to mean there is a chance the writedown is conservative.

More generally, I am tentatively impressed by Jonathan Goodman. He's saying most of what I want to hear - but ultimately it's actions that count.

On the negative side:
- There was a questioner on the call who seemed convinced that when the convertible prefs were extended, the conversion right was removed or affected. Need to check this.
- The tax thing is new to me and wasn't questioned but could be material.

I totally agree with most of the comments on here e.g. about Parq becoming a material risk and the prefs being better than the common here. Sadly I can only get exposure via the common (EU bureaucrats consider me too stupid to buy the prefs, as explained above). I will hold, but have cancelled my planned add.

Entirely theoretical exercise but it's quite interesting to work through the impact on the common if they convert the Series 5 prefs and do a tender offer for the others at say $13, paid for by a fire sale of assets below BV. It's surprisingly hard to get serious downside for the common in that scenario, but obviously that assumes the pref holders would sell.
« Last Edit: August 16, 2018, 03:44:44 AM by petec »

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #352 on: August 16, 2018, 03:01:58 AM »
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).

Am I right in thinking that these have been written off as assets but could come back if profits/gains are made? And do they disclose how much of these are at the holdco vs, say, Blue Goose?

doc75

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #353 on: August 16, 2018, 06:20:23 AM »

- There was a questioner on the call who seemed convinced that when the convertible prefs were extended, the conversion right was removed or affected. Need to check this.


I don't know what that guy was smoking. It's as clear as day in the circular.  Look on Sedar for the circular dated Jan 11, 2016 and search for "conversion".

doc75

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #354 on: August 16, 2018, 06:27:38 AM »
Interestingly they didn't explicitly exclude selling Parq, although they weren't asked. I think they also said that they have had interest in Blue Goose.

They sold off some of the assets of the Blue Goose fish business, and said their is interest in the remaining parts.  I don't think they indicated any interest in Blue Goose more generally.  They just said that selling down the beef herd will generate some cash and limit the amount of capital that corporate has to send into that sub.


petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #355 on: August 16, 2018, 06:52:51 AM »
Interestingly they didn't explicitly exclude selling Parq, although they weren't asked. I think they also said that they have had interest in Blue Goose.

They sold off some of the assets of the Blue Goose fish business, and said their is interest in the remaining parts.  I don't think they indicated any interest in Blue Goose more generally.  They just said that selling down the beef herd will generate some cash and limit the amount of capital that corporate has to send into that sub.

Thanks. I'd add that the 2006 land valuation (100m) less BG's liabilities (60) comes to more or less the BV (40, BV is 30) so I won't be surprised if there is interest in the land at a price that allows them to harden and liquify book value.

sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #356 on: August 16, 2018, 10:32:35 AM »
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).

Am I right in thinking that these have been written off as assets but could come back if profits/gains are made? And do they disclose how much of these are at the holdco vs, say, Blue Goose?

I believe all of these are at the corporate level but could be mistaken. Obviously if/when Dundee rights the ship & gets back to operating profitably and with potential investments that could have capital gains, then these tax loss carry forwards become very valuable allowing them to pay little or no tax on profitability & realized capital gains. The size of these losses could truly become an asset & opens the door in the future where profitable operations/assets could be bought by Dundee & their profits shielded by these TLCF's.


Unused business tax losses may be carried back up to three years or carried forward
up to 20 years to offset future tax liabilities of the taxpayer.16 Capital losses may be carried
back three years and carried forward indefinitely.


https://www.policyschool.ca/wp-content/uploads/2016/03/corporate-group-taxation.pdf


A tax loss carryforward is a "negative profit" for tax purposes. It usually occurs when a company's expenses exceed revenues, making the company unprofitable.

HOW IT WORKS (EXAMPLE):
Tax loss carryfowards reduce future tax payments. For example, let's assume Company XYZ has income of $1,000,000 but expenses of $1,300,000. Its net operating loss is $1,000,000 - $1,300,000 = -$300,000.

Company XYZ will probably not have to pay taxes that year, because it has negative taxable income. But let's assume that next year, Company XYZ makes a lot more money and records $500,000 of taxable income. Company XYZ pays a corporate tax rate of 30%.

Normally, the company would need to pay $500,000 x 30% = $150,000 in taxes. But because it had a tax loss carryforward from last year, it can apply last year's loss to this year's tax bill, reducing it significantly (or even to $0, depending on the jurisdiction Company XYZ is in).

Let's assume that Company XYZ can apply the entire -$300,000 tax loss carryforward to this year's tax bill. Instead of owing $500,000 x 30% = $150,000 in taxes, Company XYZ now owes only ($500,000 - $300,000) x 30% = $60,000 in taxes.

Similarly, investors can carry forward losses from selling investments and thereby reduce their taxes on future capital gains.

WHY IT MATTERS:

Tax loss carryforwards create future tax relief for companies and are therefore very valuable. The laws on how tax loss carryforwards apply vary by state, but usually a carryforward from the last two or three years can apply up to the next seven years. After that, the carryforwards expire. There are rules and exceptions for almost any circumstance, so it's best to check with the IRS or a qualified tax accountant when calculating and applying tax loss carryforwards.

As mentioned above, tax loss carryforwards are valuable assets in and of themselves. In fact, sometimes companies purchase other companies solely for their tax loss carryforwards.

Cardboard

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #357 on: August 16, 2018, 11:46:08 AM »
My view is that most of you discount too much the probabilities of refinancing of the "E"s. Hence if you want to do that, you don't stop paying dividends on your existing debt (preferreds). And as one mentioned, if you are looking to do business with other people in the resource sector, you don't do that either.

Here is a fact:

"In accordance with the terms of the Corporation’s Preference Shares, series 5, holders thereof had the option to redeem up to 17% of their holdings on January 31, 2018 at a price of $25.00 per share.  During the first quarter of 2018, the Corporation paid cash of $7,582,000 to redeem 303,265 Preference Shares, series 5 pursuant to these arrangements."

Guess how many redeemed their shares? 8.4% vs 17% max. Why?

Something similar happened when these were issued to redeem Series 4 if I recall properly. Most of the unhappy got their cash and the rest carried on with better terms.

It happens all the time with convertible reaching maturity and when the company cannot easily repay. They get extended for better terms and sometimes a chunk is redeemed.

Cardboard

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #358 on: August 16, 2018, 01:19:20 PM »
I think Dundee’s strategy with the E’s will depend on how things look for the company next year. If the restructuring has gone well (stop laughing), Dundee may be willing and able to pay off the E’s with cash. Or, more likely, as Safety has pointed out, the E’s will trade at a small premium and the holders won’t bother to redeem them. And Dundee may be happy just to let them continue indefinitely.

If things have gone very badly by next summer, Dundee may be happy to convert the E’s into common at $2. If progress is so-so, but not bad enough that the company would want to issue shares at $2, and the stock is still below $2, then Dundee may use Safety’s idea of threatening to convert the shares if E holders don’t support an extension. Of couse the stock may trade at or a little above $2 then things get complicated. The threat of conversion won’t likely work. And E holders may have no desire to continue.

SafetyinNumbers

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #359 on: August 16, 2018, 06:45:28 PM »
I don't think they will wait until next summer. Last time, the E's were heading towards their June redemption date, they pulled the trigger in November. The timing will probably be similar this time.

I also think the stock would have to be well above $2 for the E shareholders to be ok with the outcome of getting all stock as trying to sell ~40m shares, isn't easy.
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