Invesque Ord Shs T.IVQ

Q3 is out

[Capharnaum]

Key points:

- Fair value loss of around $40M due to increase in cap rate.
- Bad debt allowance (probably on Symcare) of $13M
- Reduction of interest rates going forward on their properties
- MOU with Symphony for them to either repurchase 50% of the properties they operate or for those properties to be switched to a different operator. After the restructure, Symphony should have an enhanced lease coverage and be under 15% of Invesque's revenues (currently 25%).
- Modified the unsecured facility to a facility secured by pledges of equity which will decrease the minimum fixed charge coverage ratio covenant from 1.75 to 1.60. They will also be granted a surge period through June 30th where consolidated leverage ratio covenant will be increased from 60% to 65%. This change gives them availability on the facility of $9.5M. (As of Sept 30 2020, the consolidated leverage ratio was at 61%)
- Cash position increased to $34.5M
- FFO and AFFO per share both improved from 2019 to 0.25 and 0.22, although they benefited from "Other Income" related to government grants.

It looks like they could turn the corner with the Symphony rearrangement and better operating conditions that will be brought by improvements on the COVID side. The dividend reinstatement will likely have to wait at least another year and start back at a level lower than before until they can improve the balance sheet damage done by the COVID. When they've refinanced the 2016 debentures and extended their credit revolver (likely somewhere at the start of 2022), they could restart a dividend at around 0.05$ per month. This would likely support a move to a $5-6 share price and potentially higher when their financial outlook improves. In the meantime, the 2016 debentures currently trading at 55-58% of face value are probably still the better bet.

[pjn0987654321]

Or, raise their prices.  If going forward we have virus risk, the pricing has to reflect that.  

[Capharnaum]

That's the theory, however, in practice, it depends on the demand as well. Right now, operators face lower occupancy problems (for several reasons related to COVID) but increased costs (security measures) which hurts their margins. This results in compressed margins which puts pressure on fulfilling triple net lease obligations to Invesque. The Symphony MOU should help in that regard. After

[Capharnaum]

Just listened to the conference call... Regarding the MOU with Symphony: If the assets get sold, they plan to use the proceeds to delever the balance sheet and improve liquidity. However, it would reduce th NOI and total assets. If they transition the assets to another operator, they'll have to negociate new leases and in that case it could impact NOI but wouldn't deleverage the balance

[Rc0gburn]

What do you think of the debentures here? The 6% of 2023 are trading at sub 50c now. Its almost a 30% YTM. I think the balance sheet needs to be cleaned for sure, the stock is broken but they should have huge Operating leverage in the business to an emergence from COVID in 2021. I dont like the risk return on the equity but if they can hold on and survive the next year, these debentures should

[Rc0gburn]

Capharnaum  - I just saw your comments on the debentures - I agree. The 5% of 2022 have also dropped below 60. The 2023 are now 45 . Feels like a good distressed buy.

[Capharnaum]

I have a preference for the Jan 2022 debentures as the only debt item that comes to term before they do is a $10M repayment to Magnetar. (Some Mortgages may need to be renewed as well, but those shouldn't be a problem and have an average maturity over 9 years) As of the end of Q3, they had $35.5M in bank with an average contribution from operating activities of around $6M per quarter. They

[2young2invest]

I wonder why IVQ doesn't do buybacks of those debentures at such low price.

[Capharnaum]

My best guess is that they wanted to deal with the Symphony situation first.  Since the Jan 2022 debentures can be redeemed with 30 days notice from the end of Jan 2021, they may deal with them upon closing of the Symphony deal.

[Stratocheif]

Ive been burned so many times with convertible debentures. I used to have dozens of them in my portfolio. Now just 2 or 3 and they are with the most secure companies. Big mistake not to get rid of ivq debentures last year. Now i have to go thru it. When a company runs into problems all they have to do is convert those debentures into shares. No one can stop them. Why would they redeem them? They

[RetiredCEO]

This post has been removed in accordance with Community Policy

[Capharnaum]

Well, in the terms, the debentures aren't payable in shares and Invesque needs to pay them back at the end of the term. Invesque would have to negociate with holders to have them convert to shares. Usually, holders will only agree to shares if there isn't enough liquidities to pay for them. In the eventuality that it happens (convert to shares), you can always short the stock and cover on