should be a good trade, page-40

I sold 100% of my shares the day after the run up to 8.9 cents.  That represented nearly a $2.5 billion enterprise value on a highly levered company with $40M of highly adjusted EBITDA (62x multiple).  I view the likelihood of BLY going private within the next 6-12 months to be extremely high given the low percentage float following the recap.  The debt docs specifically called out that possibility which leads me to speculate it is a foregone conclusion.  That poses the possibility of a tender off for the 2% non-insiders to get out...anyone’s guess on the premium.  I don’t think the market has properly absorbed all the nuances of the recap so I continue to watch BLY closely.

The story on the debt is an embarrassment for the Company.  They narrowly avoided bankruptcy only to nearly wipe the equity but will still have an unsustainable (absent a significant market recovery), level of debt at roughly $600M.  While the cash interest burden reduced in the near term, it is paid in kind thereby increasing the debt over time and squeezing the equity.  Lastly, to get First Pacific over the line they made a horrible agreement to repay the senior secured notes at a 24% premium to par value at maturity.  With the cost of working capital and equipment to grow out of the downturn there is not a chance the debt gets paid down through operating cash flows before then.  

It will be an interesting one to watch for sure.  All the best!


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