Lumberfeverlong wrote: Hockey Z, you are being bombarded by the SHORT AND DISTORT GANG on this board. That is not necessarily a bad thing for two reasons. First, you should thank them since they played a very significant role in bringing this stock to a level where it is trading at 1 X 2016 EBITDA. Secondly, it is actually helpful for you to get opposing views.
Now, let me give you my take on CXR as a long investor. The biggest concern about this company is that they will be insolvent in the near future. I beleive that is complete hogwash. At the end of Q2, the company announced they had $145M in cash on hand and a $200M undrawn revolver. $60M of the revolver can be drawn without the company having to meet any covenants whatsoever.
Based on the midpoint of the Company's revised guidance, they will generate an additional $242M of EBITDA in H2. Interest during H2 on the $3.2B debt (excluding Cinven earn out) is going to be $120M, The Cinven earn-out is due this year, although half can be deferred to next year by September 30th, and is now valued at about $192M USD based on Friday's exchange rate between the USD and GBP. The earn-out was set in GBP at 144M so taking an exchange rate of 1.33 USD to GBP you get to the $192M USD number. Now let's calculate the 2016 year-end cash balance based on all of the above and assuming full payment of Cinven earn out before year end.
$145 (cash on hand) + $242 (mid-point of EBITDA guidance for H2)- $120M ( 6 months interest on $3.2B of long term debt at a weighted average rate of 7.5% even though company disclosed that rate to be 7.25%)- $190M (Cinven earn-out)=$77M. I beleive H2 principal payments are in the range of $10M which will leave the company with an approximate $67M cash on hand cushion before it is required to drawn on the revolver bearing in mind there are no covenants to meet to begin drawing on the first $60M of the revolver so the company would have to miss on their EBITDa guidance by 50% before there would be any potential concerns about liquidity over the next few months.
Once Cinven is paid its earn out and assuming absolutely no growth for 2017 despite all of the product launches in the pipeline, the company should be generating annual excess cash of $200M. Now the naysayers will tell you that the North American business is a mess and that there is very little value there. They are partially right. There were big writedowns in Q2 and Donnatal is experiencing market erosion so that is why I'm assuming no growth in 2017 as I think the North American business will continue to be challenged while the UK business should experince high single digit growth. Even if the North American business falters more than the UK buiness grows, it would have to virtually collapse accross the board to have $200M of EBITDA disappear in 2017. I think that is almost impossible. All that to say, insolvency is not a real risk in the forseeable future.
As for potential suitors, I think the shorts are right that many PE firms would not be interested in acquiring a company that is already heavily indebted since they like to use debt to make acquisitions. That does not rule out a take-over altogether. A strategic buyer or partner is a more likely suitor where the two companies can obtain synergies or some kind of mutually beneficial commercial relationship. If a deal gets announced, it will be in the very near future as management mentioned on the quaterly conference call a couple of weeks ago that the Board was fully engaged in evaluating one specific opportunity.
At the end of the day, I think there is much more upside potential than downside risk at these levels. I just can't tell you whether the bottom has hit yet, but I think we are close. Finally, in passing, be wary of statements like "amortization is being used to prop up EBITDA". If you know anything about finance you would know that EBITDA excludes amortization. Just spell it out "Earnings before interest, taxes, depreciation and amortization". The recent significant writedowns will actually help the company from a GAAP earnings perspective where amortization is taken into account.
I've given you a lot of information. I hope it is helpful in your investment decision-making process. Now watch the short sharks attack.:)
LaticelnExile wrote: The Guarantor's rights, subordinations and mitigation obligations are complex within the 197 page Creditor document. A white knight will not rescue Concordia's debt obligations by paying 8% interest on debt that is greater than the companies assets. The company is distressed and PE have priced out the assets ruthlessly. With North American revenue declining and showing continued erosion expect more imipairments because they have a far too length amortization period for their drugs which is propping up EBITDA. Considering their underperformance consolidated revenue will have to be lowered. There isn't a strategic advantage for PE to do a leveraged buyout on a leveraged buyout There is no possible way (aside from a magic trick) that new purchasers can get a positive return, never mind the 12.4% return that you have flaunted. If they did PE wouldn't have run from the data in April 22 when the first "rumours" of a buyout surfaced (and incidentally when the CEO pleged his shares against debt - and there is not a CEO on the face of this Earth who pledges his shares because he thinks the stock price is going up on a takeover offer.) Furthermore, the path just got more treacherous for Concordia since April when they put the company up for sale. PE will scavenge the assets in CCAA or BIA, there are only two options here because the company is not viable and the shorts have known this for some time.
Hockeyz wrote: Lati: The credit and guarantee agreement you posted are all part of the $3.4 billion in loans outstanding. The USD term loan has $1.03 billion US outstanding, the pound sterling loan has $637M US outstanding and the revolver is zero as it has not been drawn on as per Note 11 in the June'2016 financial statements. The $220M earnout is also included inthe $3.4 billion in loans as per Note 18.
What I am saying is even if the purchasers pay $16 per share for CXR (double the current price) and pay off all (100%) of the debt of CXR so they are debt-free (and therefore there would be not interest on the debt), the new purchasers would still get a very good 12.4% return on their $4.2 billion investment.
Alternatively, if the new purchasers did not pay off any of the debt (then there would continue to be interest on the debt), their yearly return on investment would be 30% ($4.81 per share of earnings divided by $16 purchase price of shares). Either way looks like a very good return for the purchasers, combined with filling up their drug pipeline and 60 new drugs in the next few years.
I do not know where you get the $2.2B of assets from. All I am going by is the earnings expected in the future to determine the return.