Friday, March 20, 2009

Blockbuster Disclosure Angst:Lenders or Investors

Blockbuster (BBI) announced results which may have some cause for encouragement; but they cannot yet say they have concluded negotiations with lenders to extend their credit facility. This may impact the auditor’s ability to give them the critical going concern opinion. Blockbuster senior executives all sounded very positive and insisted that the company is a cash machine and is well positioned for the future.

The problem with the disclosure program is that the most important financial partner i.e. the lenders are not in the room. But if they hear a frank discussion among equity investors about risks and rewards in the business they may become spooked and not extend the facility or ask for more onerous modifications.

So the next question investors have to ask is “Was management as forthcoming as you would normally expect?” Conflicting agenda’s. Damned if you do damned if you don’t.

And then you have to wonder about competing technologies and truly consider if you want to go all the way to a retail outlet to pick up a movie when your teenagers know how to download almost anything they want.

Thursday, March 19, 2009

Eddie Bauer Negotiates With Lenders

Eddie Bauer (EBHI) announced results which were terrible of course. Being a retailer business is bad. Basically they are renegotiating their borrowings and cannot file their 10k until the deal is completed. This may even affect their ability to say that they are a going concern. Some glimpses into the process indicate higher interest rates and warrants for the lenders which mean dilution for the investors.

The press release is very silent on operating issues and just focuses on financial compliance with lending conditions. The lenders will be focusing on operating issues as they decide how to prop up this one. If they get warrants on the basis of direct conversations with management which results in more comprehensive information that was not provided to the investing public is this not the ultimate in insider trading.

Wednesday, March 18, 2009

American Apparel Says It's All Good

American Apparel (APP) announced Q4 and year end results. Dov Charney, Chairman and Chief Executive Officer made much of the results stating

"2008 marked a year of great accomplishments for American Apparel. In addition to opening very promising stores in a large number of new markets, we were very pleased to have achieved the EPS and EBITDA guidance that we outlined as targets a year ago. Now with key parts of our management team starting to take shape, our capital structure resolved, and a sophisticated financial partner at our side in Lion Capital, I strongly believe that our company is better positioned than at any time in its history to succeed and deliver on the great potential of the American Apparel brand."

Yes we all know of Lion Capitals involvement but what do you mean the “management team is starting to take shape” Also can you clarify the current status of litigation, lawsuits and other corporate bitchslaps that are taking place.

Tuesday, March 17, 2009

Fortress Creates Losses But Pays Itself First

Fortress Investment Group (FIG) reported Q4 and year end results using a few tricks from the AIG public relations machine. Pre-tax distributable earnings (DE) were reported at a loss of $162 million for the full year. Then they lay this complicated sentence on investors and report GAAP net loss, excluding principals agreement compensation, of $100 million. GAAP net loss of $322 million. Presumably they paid principals $222 million despite the fact that they are experiencing losses.

In Q4 they report GAAP net loss, excluding principals agreement compensation, of $85 million. GAAP net loss of $140 million. Which means in Q4 they paid out $55 million despite losses. They continue on with an explanation in bold letters that one quarters results is not indicative of another quarter and they conclude that Quarterly dividends are not necessarily representative of the Company's earnings in the current quarter.

They then go on to announce that “The Company's Board of Directors elected not to pay a dividend in the fourth quarter of 2008. Consistent with its decision in the third quarter, the Board elected to retain capital for potential future investment opportunities and for working capital purposes“ Who needs a dividend when you can just take the cash out directly?

At the same time Forbes Magazine reports Chief Executive Wesley Edens plans to participate in this weeks TALF program which will help stabilize financial markets; we pray and hope.

Not quite like AIG, which needs to be propped up, but the mind set is the same. Inside management lines their pockets, pays themselves first and leaves poor results behind for investors.

What a compelling investment proposition.

Monday, March 16, 2009

AIG Plays The Hysteria Machine

AIG (AIG) seems to enjoy its position as the whipping boy for Wall Street. They announce a list of counter-parties who benefitted from the billions that were pumped into AIG. The outrage from the financial press just plays to the hysteria. Solving the AIG dilemma is like solving cancer of the blood you have to do it because it influences anything important.


AIG in announcing bonuses is just adding oil to fire. You may talk about contractual obligations but when your employer is one of the largest recipients of emergency government funding in all of financial history you should just be thanking your lucky stars that you are not flipping hamburgers.

AIG by issuing these bonuses and not declaring a financial force majeure is indicating that they do not get it or even want to get it. Even with new management they do not get it. Heads I win tails you lose is not a credible value proposition for investors or emergency government funding.

You have to be suspicious of the 50/50 approach in releasing the recent information. AIG knew that the public would be outraged. AIG knew that the public would be ignorant about the counter-party implications. So AIG put out both announcements into the same fire storm.

Challenge to legal community: find a way to win an injunction to stop the bonuses and have them reviewed in a more sober light.

Citigroup Four Is This Really A Change?

Citigroup (C) announced the upcoming appointment of four new directors. I believe the press release was issued from Citigroup and not a federal regulator of some description.

The four new guys are the former chairmen of U.S. Bancorp (USB) Jerry Grundhofer and Bank of Hawaii (BOH) Michael O’Neill, as well as William Thompson, a Salomon Brothers veteran who went on to become the head of bond-fund giant Pacific Investment Management Company, or Pimco, and a former president of the Federal Reserve Bank of Philadelphia from 2000 to 2006 Anthony M. Santomero, who was most recently a senior adviser at McKinsey & Company.

Sounds like four pretty good guy’s. Some Citigroup directors are retiring, some are leaving but the majority of the board is unchanged. Given that these guy’s had to be signed off on by federal regulators, how do you manage the corporate governance? Whose interests do they represent? If Citigroup is not nationalized does the US government have control of the board. How does the Saudi Prince and Singapore Sovereign Fund feel about this one? They must have known on some level!

So the cast of characters has changed. What will the board be doing differently to ensure that the shareholders interests are protected and the American taxpayer is not cheated?