Added 1/3 to my position, it's getting slaughtered like you'd think it was an Airline... Epsilon sale wasn't too bad, if the world is coronavirused to death, cause they got a much better debt profile now (and it trade at like 3,5x fwd earnings...).
Didn't care much for Airmiles or Brandloyalty, that's suddenly a large relative store of value... There were a couple of interesting bits from a KBW fintech conference yesterday:
Sanjay Harkishin Sakhrani, Keefe, Bruyette, & Woods, Inc., Research Division - Managing Director [61]
Got it. I'm going to shift gears and ask a question about some fun topics around capital and after that, we'll come to the audience for questions. So please, audience prepare some questions. Obviously, CET1 at the bank, really, really strong. When you pull up and you look at the holding company not as strong, how do you guys manage capital at the company? Because I think when you look -- when you think about some of the investor concerns, it's around capital at the holding company level, but that might not necessarily be warranted. So maybe you could just talk about it.
Timothy P. King, Alliance Data Systems Corporation - Executive VP & CFO [62]
I think about it as a buy no meal kind of a bifurcated model. When I look at the banks, first and foremost, for a variety of reasons, has to be well capitalized, has to have passive safety and soundness with the FDIC. So very comfortable there. But then you move up to the corporate level, and you can't use a financial services model at a corporate level because we have nonfinancial services assets. Then I just look at it, where do I feel comfortable about, when that debt is coming due, do we have enough cash flow to support it short term, do I feel like that debt is not going to be put us in a spot where it doesn't let me sleep at night. For instance, redoing the whole balance sheet the last 6 months with moving all that debt out into 3 and 5 years makes me feel much more comfortable, and then look at how much cash flow we have spinning off. Collectively, call it, $600 million of free cash flow coming from the entity. And I look at the amount of debt we have at $2.8 billion at the parent, you start feeling very comfortable with that. But having said that, I know -- I've heard from a lot of folks today, that's causing consternation because that's you have this $2.8 billion, and then you look at your tangible book equity and the fact that you have negative equity at the parent company makes them feel a little uncomfortable. So obviously, Ralph, myself and the Board will be very clear about what we think we're going to do and make sure that we decide how or if we're going to pay down the debt or how we're going to do that, so we're clear with that.
Sanjay Harkishin Sakhrani, Keefe, Bruyette, & Woods, Inc., Research Division - Managing Director [63]
So when we think about sort of your regulators, they are myopically looking at the bank. They're not really focused at the holding company level at all.
Timothy P. King, Alliance Data Systems Corporation - Executive VP & CFO [64]
They do have -- they do look to the bank parent as a source of strength. And I think it's actually a fairly strong indication, they look at the bank parent, I think there is a positive, not a negative from the bank parent. For instance, there's a $750 million line of credit we have at the parent that if ever need be, we could obviously have that available for the banks to make sure the banks have, if they hit an economic downturn, we had to infuse capital down there, is that ability to do that. The regulators are very comfortable from what we've heard. They obviously don't object, and that's how you feel okay. And looking at the bank parent, they're obviously going to watch that. They feel we're in a good spot there.
Sanjay Harkishin Sakhrani, Keefe, Bruyette, & Woods, Inc., Research Division - Managing Director [65]
Is there any itch to buy back stock given the stock's valuation here? Or not really because you want to shore up capital?
Timothy P. King, Alliance Data Systems Corporation - Executive VP & CFO [66]
The itch got a whole lot large in the last week.
Sanjay Harkishin Sakhrani, Keefe, Bruyette, & Woods, Inc., Research Division - Managing Director [67]
Absolutely.
Timothy P. King, Alliance Data Systems Corporation - Executive VP & CFO [68]
The big drop. Look, it's a conversation we got to have with a more large group. The -- there's a number of investors who said to us, and this is -- look, we run this company for the investors. A number of investors have come and said, we are concerned about your capital structure. The prior questions you had and the amount of debt you have there and the double leverage. But I don't know if we have to address one versus the other. When you start spending $600 million off, you could potentially do some type of share repurchase and some type of debt repayment. I just think we need to be very clear and make that decision and then articulate it to The Street, and that's obviously a work in progress.
