Jz Capital Partners Share Discussion Threads

[owston] 19/3/2009 10:16

Jonwig/Hindsight,

My earlier figures showed an $8m shortfall on the last issued figures and a probability of a $20m gap now.

I read somewhere in the posts that a significant portion of the listed portfolio couldn't be sold due to "tie in's" (is that possible with listed equities?) so the portion not currently available in cash (i.e. approx $80m) will have to come from the unlisted portfolio?

Clearly that's a tough sell (even if its possible) in these market conditions

Owston

[jonwig] 19/3/2009 08:00

If the hedge needs repaying at the latest level of $45m (say) that leaves cash only sufficient to cover about 105p - ie. half the zeros' liability.
So your half-half suggestion might be close to the mark, hindsight.

[hindsight] 19/3/2009 00:10

Suspect it will be about half payout in cash and half in new zeros (would be similar asset cover type to JPZZ in JP Morgan Private Equity JPEL and they trade at 6.5%, so suspect 10% would get it away) with a mix and match option. With QE now in US, should be the start of $ fall which could be helpful to US companies.

[owston] 18/3/2009 21:43

Jonwig,

Yes, ships in the night!

I checked the ZDP's for today and I could only see sells (again) sometimes trades turn up but are either errors or Market maker to market maker trades.

50K sales on JZCP today but the price is up, I can't see the logic in that....

You are lucky to get a reply from the company, I tried e-mailing on several occasions, phoning but i could only get the company secretary and he wasn't very helpful.

I can now understand JZCP's share price as it must be priced on worst case of a requirement to sell a significant portion of the unlisted stocks to make up the gap.

I presume that the ZDP's are being priced on falling private equity valuations and limited "escape" routes.

A refinance is the best option with a refinance with more ZDP's with ZDP holders getting preferential terms for "lock in" and an opt out if institutional take up allows ZDP holders out.

Any other thoughts?

Cheers

Owston

[jonwig] 18/3/2009 19:36

Owston - our posts crossed!!
Look at the charts (earlier posts) for the two largest listed cos.

By the way, a 150k buy of zeros today.

[jonwig] 18/3/2009 19:33

I've had a reply from the accountant which says, simply:

ZDP liability (approx):

30/9/08 ... £93.1m = $165.6m FX 1.773
31/12/08... £95.0m = $138.3m FX 1.4575
24/06/09... £98.75m= ?

So that explains simply enough how they set aside the required $ liability in the balance sheet. But they didn't comment on how the hedge works.

As for the hedge, this from the IMS:

...........01/07 ...... 30/09 ........ 31/12
ZDPs ... (182,214) ... (165,643) ... (138,259)
Hedge .... 10,690 ..... (11,519) .... (43,323)
Sum .... (171,524) ... (177,162) ... (181,582)

Obviously, the weaker the GBP the less needs to be set aside for redemption, but the greater the hedging deficit.
By 24/06, the sum looks as though it will be around $190m, and it's that which we need to account for in covering the liability ... I think!

[owston] 18/3/2009 19:28

Jonwig,

I think the currency hedge is the bit I missed! I knew it was hedged but forgot that the liability would also have to be repaid at the same time.

Looking at the interim figures for February they state the following (all figures in DOLLARS)

CASH = 108,761
Listed Equities = 64,637

Total "liquid" assets = $173.398m

Liabilities

ZDP's = 138,259
Currency Hedge 43,323

Total Liabilities = $181.582m

Therefore on my calculations the ZDP's are $8m short of a liquid position to repay the ZDP's

On the preceding figures the listed equity portion had fallen by 10% in 3 months from 30/09 - 31/12/08 from $70.6 to $64.6M

Its been a long long time in markets since December and therefore I would not be surprised if the listed equity portion has not fallen at least another 20% which would leave $51.68m

Therefore total cash + listed may be lower than $160.44m or a shortfall of over 20m dollars.

Its unlikely that there will be a significant recovery before June and therefore some form of refinancing is going to be required to cover the gap.

Looks like you were right Jonwig

Any chance you could calculate the current value of the listed portion?

Cheers,

Owston

[hindsight] 18/3/2009 13:40

Jonwig, your $177 and $181 look right. £ figs different as forex moved.
Question I have is why did they hedge 100% of zero, as a weak $ could have increased the value of their assets so a trade off. Easy with hindsight but think 75% would have been sufficient.

[hoveite] 18/3/2009 12:56

Because, if the total dollar liability (zeros + hedge) is fixed the sterling value of the liability will fluctuate with the exchange rate - and the liability in sterling will have increased as the pound has weakened against the dollar.

While the sterling value of the liability to zeros obviously doesn't fluctuate the situation changes when you add the hedge into the picture.

[jonwig] 18/3/2009 12:47

Yes, but why is there overcompensation (£125.2m) when it should just be around £97m?
I've e-mailed them but can't be confident of a reply!

[hoveite] 18/3/2009 12:42

Why does that look 'wrong'? Isn't the purpose of the hedge to keep their dollar liability from fluctuating with the exchange rate? Which from those figures it pretty much has.

[jonwig] 18/3/2009 12:27

From the interims (30/09/2008):

ZDP liability ...(165.6)
Hedge ........... (11.5)
Total ...........(177.1) = £95.8m (using £1 = $1.85 which was rate at 30/09).

ZDP liability is incremented monthly at 8% pa, so given 9 months to 24/06/2009 produces £101m.

At 31/12 numbers were:

ZDP liability ...(138.3)
Hedge ........... (43.3)
Total ...........(181.6) = £125.2m (using £1 = $1.45 which was rate at 31/12).

So that looks 'wrong' whereas the 30/09 numbers fit my interpretation.

[hoveite] 18/3/2009 09:44

jonwig - yes, my use of English was clumsy. I meant that the downside is greater.

[jonwig] 18/3/2009 09:39

Hoveite - you may be right, I'll need to check again.

The way I read it, they are liable for £98.7m on 24/06 (45.7m ZDPs * 216p).
Their balance sheet chalks up a regular US$ liability which the hedge ensures won't be materially different from The GB£ liability on maturity.
So Hedge + US$ liability will be the amount to pay out.

If you're right, shouldn't you be saying "the potential downside on the zeros is more than you state."

[hoveite] 18/3/2009 09:23

jonwig - I am not sure that you are taking account of the currency hedge correctly in your post 24.

You say "Pure cash at 31/12/08 was around $111m (little changed from 30/09) or £80m. and the zeros liability stands at around £100m ($ + hedge)"

But won't the liability for the hedge have to be settled when the zeros are paid out? So the liability coming due is approx £100m + the liability for the hedge.

On 31/12/08 the liability for the hedge was approx $43m and the pound has weakned against the dollar since then so that liability will have increased.

i.e. a large portion of the $111m cash won't be available to pay off the zeros as it will be required to pay off the currency hedge - so the potential downside on the zeros is lower than you state.

[jonwig] 18/3/2009 08:21

Owston - auditors are Ernst & Young.

Have you seen the prospectuses here



(The Company --- About the Company)

[owston] 17/3/2009 21:37

Jonwig,

You have my conundrum in a nutshell.

JZCZ have "tanked" as you will note they did a few months ago and quickly recovered. The shares are covered by the assets and in the absence of an agreement they could force the sale to meet the liabilities of the ZDP's

Therefore, the effective return is relatively enormous for such a low risk. Even if its not paid the terms of any agreement must be more favourable than the current 8% p.a. on the ZDP's to compensate for failure to pay.

So, I understand the JZCP fall (to a degree) but why the JZCZ fall - it doesn't make sense!

If I wasn't fairly well invested in these already, I think I would certainly be buying more.

It the worry that there is something I don't know about, like a Madoff situation or Aurthur Anderson as the accountants.

Cheers,

Owston

[jonwig] 17/3/2009 17:58

If the ords look too risky, JZCZ might have limited downside.

Pure cash at 31/12/08 was around $111m (little changed from 30/09) or £80m. and the zeros liability stands at around £100m ($ + hedge).
So around 175p out of the 216p is covered by cash.
That gives limited downside at the current 194p.

Lots of reasons why zero holders might be persuaded to accept 175p plus sweeteners. Though there would probably need to be a meeting, etc. so they need to get a move on.

I'm coming round to thinking the zeros might be better value here in the short term (100 days).

[jonwig] 17/3/2009 10:58

Incidentally, the JZCZ are due 215.8925p on 24/06 - ie. in 100 days' time.
At the current 194p, that would be an annualised gain of 45.5%.

[jonwig] 17/3/2009 08:55

Owston - the point of the hedge is to keep the liability in GBP independent of currency fluctuations ... and I, for one, would be wary of any company which took a view on FOREX movements!!

(I certainly wouldn't like to bet on the GBP/USD rate going forward, with O'Bama making quite an amazing mess of things in my view and China being open about wanting to rebalance its exposure to US Treasuries. As for HMG, are they any worse than the rest?)

Yes, any solution ought to involve substituting the existing zeros or raising money to pay them off.
I'd think the last thing they would want is a forced exit from any part of the unquoted portfolio.

I don't hold these, but am much intrigued and may well buy.

By the way, JZCZ has tanked:

[owston] 16/3/2009 21:44

Jonwig,

I've read through the posts and have learn't a bit but I have done most of the maths myself before.

Clearly the redemption of the ZDP's may well be the issue but the DOLLAR value of that was much higher a few months ago. I know they hedged the Dollar/pound exposure which may be creating the problem.

However, given some of HMG's moves a few months ago its was a racing certainty that the pound was going to drop and I would have hoped they would have reduced or cleared the hedge position. Therefore the POUND fall should work in favour of both class of shareholders.

However, the situation has progressively got worse. I agree the refinancing of the ZDP's is the way forward and there may well be some institutional buyers who may well be interested but the terms will be in their favour.

That could influence the capital shares but shouldn't influence the ZDP's because the worst case is the holdings (Q & UQ) have to be sold to pay the ZDP holders, which, under unfavourable terms could wipe out a lot of value for capital share holders.

Therefore, on my logic, the ZDP holders will hold all the cards. The company could part pay the ZDP's and extend the remaining portion over a longer term.

Alternatively why not offer ZDP holders say 15% p.a. to defer until the company can repay at a time of it choosing. This would be a handsome potential return and an incentive for the company to liquidise assets when its favourable to do so.

I can therefore "reason" the position of JZCP but not JZCZ?

Any further comments?

Owston

[jonwig] 16/3/2009 07:25

Owston - if you read through the first 18 posts you might get some answers to your queries ... including the charts for their main quoted investments.

[owston] 15/3/2009 22:32

Hi Gents.

I've held the ZDP's and am a bit puzzled by a few things here

1) The ZDP's are covered 78% by current cash and may use the dividend stream to prevent the need to sell some of the listed investments when the ZDP's are due.

2) the listed part more than covers the the remaining 22% of the ZDP's so why is there significant selling when they should barely be at risk?

3) If the NAV is accurate and reasonable then surely these shares should be much higher. A discount of around 90% to NAV which has massively outperformed the market and "private equity" funds by a huge margin should be in demand.

4) If no one was selling significantly then market makers wouldn't have much stock and therefore the price should be buoyed up by that but it fell nearly 10% on Friday when markets were up.

5) How do JZ buck the market trend by such a margin, I don't want to start rumours but it seems very odd to me. Who does the accounts - are we looking at another Madoff situation or dodgy accountants or poor valuation models?

Very puzzling when you look at Candover investments which has fallen from nearly £22 a little over a year ago to little more than £1.........


Any thoughts?

Regards,

Owston

[jonwig] 10/3/2009 17:54

ZCP's listed investments result from earlier successful flotations of unlisted investments. There are still partial restrictions on the saleability of these investments

Yup - I suspect it's a lock-in agreement, whereby existing holders can't sell for (say) three years after floatation, except under special conditions, which are rarely revealed.

As you say, they will have plans, and maybe today's sharp rise in the US will help here.

[robertsbb0] 10/3/2009 17:12

John,

According to their interim report there are restrictions (unspecified) on the saleability of the listed investments.
If they intend repaying the ZDPs then the $72m will have to come from the unlisteds.
Are they trying to flog these and the market has got wind?
As ROBIZM says they could issue more ZDPs if there is demand. I did read somewhere that there is institutional demand for longer dated ZDPs.
I can't imagine these guys have not got something worked out,they are financiers after all.
Is todays late buying the turn we have been waiting for?