Nah, it's fine, I'll be quiet for now...
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Global Macro Trading Journal
- Thread starter Daal
- Start date
I have been long and wrong but damn, look at my email I sent to bill ackman in November.I guess at least I was right about this
"
Bill,
As you can see VRX continues to struggle, I was on the camp that thought this was all a panic a while back but this no longer looks like its the case. The conference call the other day was a total disaster
Essentially, they got to together to drop a few bombs, deliver no good news and move on. People went from worrying about Philidor to worrying about the impact of the business disruption and worrying about liquidity. Because the company (and you Mr. Ackman) are not very popular, this will only provide an incentive for the media to continue with its piñada party. As the articles start to mount (and the bloomberg article is likely to be only the beginning) the concerns are likely to increase
In your Nov 9 call you mentioned that you did a lot of work in finding out if the negative headlines would impact the business of VRX. You found out that it would be unlikely to happen. Thats a form of a 'stress trest', but what about stress testing against the impact of worries about the liquidity of VRX? What would be the impact of all VRX's business partners? What if volume of some drugs were to decline as a result of these concerns? Have you stress tested this extensively? It is even possible to do such thing?
At this point I would urge you to get the company to get ahead of the curve, before this piñada party creates a self-fulfiling prophecy. VRX needs to
-Sell assets now. They need to announce as quickly as possible that they are planning assets sales to delever, just the announcement is likely to help to install some confidence in the company
-Provide a EBIDTA guidance range. They might not be able to pin down a number precisely but they could provide a range. If the range is quite a bit above the covenants this would help to install confidence. The way the things are now, the conference call only made things worse.
-Raise equity. Yes, it would be expensive but it would remove the downside scenarios off the table. Its not the end of the world to give up a % of the upside in order to make sure the stock does not go to $0
FNMA FMCC can to go $0 so you have a much smaller % of your assets in there. VRX is much bigger and has that risk, so doing a few things to prevent that seems a necessity in order to remain consistent
$2-$3B in asset sales with an equivalent amount in equity (immediately used to buy back bonds), along with an EBIDTA range would do a lot of stop the downward confidence spiral.
Cordially,
ps: im long PSH but short VRX to hedge your fund exposure "
"
Bill,
As you can see VRX continues to struggle, I was on the camp that thought this was all a panic a while back but this no longer looks like its the case. The conference call the other day was a total disaster
Essentially, they got to together to drop a few bombs, deliver no good news and move on. People went from worrying about Philidor to worrying about the impact of the business disruption and worrying about liquidity. Because the company (and you Mr. Ackman) are not very popular, this will only provide an incentive for the media to continue with its piñada party. As the articles start to mount (and the bloomberg article is likely to be only the beginning) the concerns are likely to increase
In your Nov 9 call you mentioned that you did a lot of work in finding out if the negative headlines would impact the business of VRX. You found out that it would be unlikely to happen. Thats a form of a 'stress trest', but what about stress testing against the impact of worries about the liquidity of VRX? What would be the impact of all VRX's business partners? What if volume of some drugs were to decline as a result of these concerns? Have you stress tested this extensively? It is even possible to do such thing?
At this point I would urge you to get the company to get ahead of the curve, before this piñada party creates a self-fulfiling prophecy. VRX needs to
-Sell assets now. They need to announce as quickly as possible that they are planning assets sales to delever, just the announcement is likely to help to install some confidence in the company
-Provide a EBIDTA guidance range. They might not be able to pin down a number precisely but they could provide a range. If the range is quite a bit above the covenants this would help to install confidence. The way the things are now, the conference call only made things worse.
-Raise equity. Yes, it would be expensive but it would remove the downside scenarios off the table. Its not the end of the world to give up a % of the upside in order to make sure the stock does not go to $0
FNMA FMCC can to go $0 so you have a much smaller % of your assets in there. VRX is much bigger and has that risk, so doing a few things to prevent that seems a necessity in order to remain consistent
$2-$3B in asset sales with an equivalent amount in equity (immediately used to buy back bonds), along with an EBIDTA range would do a lot of stop the downward confidence spiral.
Cordially,
ps: im long PSH but short VRX to hedge your fund exposure "
Had they raised that equity at $75 with the asset sales, they would be fine now with a mountain to cash and less debt. I'm not selling though, because essentially they will go down that route now. At least that's my speculation after the ackman PR. he's got a board member now, he didn't in November. At this point, they will try to salvage the investment and I believe they will succeed
Its not a fun ride but the way I structured and suggested investment ought to be made (10-20% of investable assets on PSH with a VRX hedge to get exposure down) limits the volatility a fair amount. Part of the thesis was that the discounts in the other stocks fair value were going to be offsetting any issue at VRX. I still believe that
Another reason why I will stick with this is that if I can keep my head clear on this situation while everybody is going nuts, then, in the future I'm likely to be rewarded in other plays that I will buy/hold while everybody is dumping cheaply. There is no contrarian play more than VRX right now, not only people hate VRX but they also hate Ackman. This is an issue I had in the past but today I felt fine even though the stock was tanking. In the past I would be nervous and be considering getting out but not today. I'm long PSH because I believe its like buying an early stage BRKB that is going through a bad period (which all stock pickers do). I thought VRX was going to $0 or $200 but odds favored the bull side, not much has changed off this thesis, except the bull case has probably lost a fair amount of upside because, I think, they will be doing asset sales to restore confidence. And they will probably have to sell parts of the crown jewels
Well, like I said, best of luck...
Well, like I said, best of luck...
Given the way I structured, a 15% PSH position (with 18% of the fund being VRX) translates into 2.7% position(more like 3% due the bonds PSH owe, debt leverage). With the hedge, its more like 1.5%. If I'm wrong, I lose that. Not that big of a deal. Its not like I'm getting killed like the other guys who went huge into this. I warned from the start that this stock didn't warrant a big position due the leverage. I even criticized other PSH holders of the forum when they said it didn't make sense to hedge.
We will see, I still think asset sales will get shorts covering and buyers back in. Its far from clear that the shorts are right, for that you need to know the cash flows of the drug portfolio in 2017/2018, and nobody knows that. This selling has to do with covenants which I don't think will be a problem
I'd love to be able to jump in the bear side in the 'sure ride to $0' but they have to file the 10-K by April 29th to be in a event of default, more than a month and a half away. That assuming the banks don't amend the agreement, which is quite likely.
This is a sample size of 1 but it illustrates a point. Look at Hanger inc (HNGR), they haven't filled a financial in more than a year (thats like 4 10-Qs and a couple of 10-Ks), they breached a lot of covenants. They admitted wrong doing if not fraud, yet bondholders and banks have waived the covenants and the company has been operational all that time. I see that a lot in tiny 'sure bk' companies too, it almost always takes a lot longer than the shorts expect. I know that because I have been in the otherside and it's a bitch. You get squeezed when you get in thesis like this, constantly. Creditors can be quite risk averse, its better to let the compant try to operate their way out of the mess rather than to roll the dice in bk
What will determine the future will be cashflows and if guidance was brought down so they could beat it in the future, the stock will likely rise a lot from here.
This is a sample size of 1 but it illustrates a point. Look at Hanger inc (HNGR), they haven't filled a financial in more than a year (thats like 4 10-Qs and a couple of 10-Ks), they breached a lot of covenants. They admitted wrong doing if not fraud, yet bondholders and banks have waived the covenants and the company has been operational all that time. I see that a lot in tiny 'sure bk' companies too, it almost always takes a lot longer than the shorts expect. I know that because I have been in the otherside and it's a bitch. You get squeezed when you get in thesis like this, constantly. Creditors can be quite risk averse, its better to let the compant try to operate their way out of the mess rather than to roll the dice in bk
What will determine the future will be cashflows and if guidance was brought down so they could beat it in the future, the stock will likely rise a lot from here.
Not sure I agree with that...I'd love to be able to jump in the bear side in the 'sure ride to $0' but they have to file the 10-K by April 29th to be in a event of default, more than a month and a half away. That assuming the banks don't amend the agreement, which is quite likely.
Here's the relevant indenture:
http://www.sec.gov/Archives/edgar/data/885590/000119312515109400/d900048dex41.htm
My read of it (section 4.3) is that they're in default, but they have a 60 day grace period to cure it.