buy, page-25

Coy did a conference call yesterday. Some institutions participated. Coy will travel to major capitals for personal briefings in the next couple of weeks.
Based on the conference call:

Real NTA is 90c, based on all contracts/loans going to maturity. The coy does not have a significant concern about the credit risk of its contracts/loans.

Mark to market NTA is 67c.

The first challenge for the coy is retaining its triple A rating. Standard and Poors (S&P) has done its review. The coy continues to answer follow up questions to S&P. The coy will find out the latest rating given by S&P in the next few weeks.

Allox max was designed to maintain its triple A rating while being leveraged 11:1.

It is currently leveraged 7:1. So this works it its favour.

If S&P drops its rating, Alloc Max will sell off some assets to regain its triple A rating. Selling off some assets will move the real NTA towards the mark to market NTA. It will also mean stopping distributions for a while, while they regroup. The extent of any downgrading of rating will affect how much asset value needs to be sold off to regain the rating.

The second challenge is renewing the warehouse debt facility. First expiry of the facility is as at 30 June. But Alloc Max retains entitlement to the loan (223M – which will not be increase) to 30 Sept, at least.

Soc General could sell the debt facility on the market after 30 June. They could do it in a way which would adversely affect Allco’s profit. But Soc General have indicated that they are not interested in being mercenary/aggressive in doing this.

If Soc General decides it wants its money back (& is pushing to sell the loan at terms unfavourable to Alloc) and an alternative facility has not been found by Alloc, Allco can repay the loan by selling assets.

Quite separately, the cycle of incoming cash to Alloc based on maturing loans/contracts of the Allco business is on average three and a half years. Alloc will get quite a bit of cash in over the next 18 months (while not relending). I do not know the extent to which this will cover the $223m.

Alloc Max’s situation is not as bad as the pricing in the market makes it appear to be.

At this stage there is no intention to stop March distribution, and no intention to close the business. They are planning to get over the hump and ultimately allow the company’s market value to move back to close to NTA 90c. p/share.

Will tell you more when I hear. No advice from me, but I am taking the punt.