Fortress Global Enterprises Inc - Class A FTPLF

Raymond James about Fortress Paper

[Flintstone60]

Raymond James (7/7/2015)

   FTP.DB (6.5% ’16, X=$37.50, Size $40mm, YTM 30%) and FTP.DB.A (7% ’19, X=$31, Size $69mm, YTM 30%): I haven’t said this in some time but I would own these here. Both are trading on a similar YTM of about 30% but I would lean toward the ‘19 cvts as they are trading 20 points lower and as the balance sheet strengthens they should be the greater short term beneficiary of a tightening of the credit. Also, if the ‘16 cvts are restructured or refinanced in any form the ‘19 cvts will benefit as well. One of the reasons for the ‘16’s trading tighter is a view that in a bankruptcy process they will receive a greater recovery value. I’ve made a few inquiries and this does not appear to be certain. However, a case can be made for either, obviously the ‘16’s are where the companies attentions will be focused over the next 18 months. Some  other key points on why to own either of these cvts here:

o   Landqart (Security paper business) has been progressing over the last couple years with waste rates coming down and its now having record months with a 2 year backlog currently in place
   In the process of trying to improve the company’s liquidity position they were at one time looking at an inventory backed facility with a European bank which might have raised $10-20mm but they wanted land security as well so FTP had the land appraised. Now it appears there is the potential for a $100-130mm sale leaseback agreement based on the value of the land.
   A sale leaseback agreement would see FTP pay 4-5mm Swiss Francs per year in rent in exchange for the upfront payment
   This would certainly be a great way to surface value and reduce debt particularly given no one has ever given them this much credit for these assets
   Ultimately FTP could sell the business separately if it chose to once the sale leaseback was completed
   However, its not likely we’ll see anything materialize in the short term (i.e. next month) as structuring the deal will take time so something closer to the end of the year might be achievable

o   Thurso (Disolving pulp business) appears to be operating more consistently with longer runs between stoppages and fewer and smaller hiccups when they do occur, that being said, they’re probably due for one shortly
   pricing has also been better lately and costs are coming down so overall a net positive; however, 
   If the Europeans start to see duties imposed on their product then pricing could get more interesting

FTP shares have been running as well recently having double over the last 2 months – a healthier equity is obviously healthy for the cvts and leaves the company with more optionality. Again, this company is quietly turning the corner . . .  

from here: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ftp-fortress-paper/2450/