Dredging the market for corporate debt

I’ve been doing an exhaustive examination of the available publicly traded debt from US corporations. I am specifically looking for debt that has maturity lengths of between 2-8 years, and the underlying issuer is relatively solvent. The actual parameters I used for the screen I’ll leave aside, but there were a lot of issuers to do some quick research on to see whether they were worth further investigation.

The “relatively solvent” criterion allows me to exclude companies that are basically operating entities that are encumbered with a gigantic amount of debt relative to tangible book value. These entities typically exhibit goodwill and intangibles far in excess of what the stated equity is, which means that the entity was likely a result of a previous leveraged buyout or some sort of financial restructuring to extract the maximum capital of the entity.

A good example of this is Toys R Us, a completely leveraged mess of a financial entity as a result of a leveraged buyout years ago. If you like anti-depressants, please take them while you read their last quarterly report. I would not go anywhere near their unsecured debt. Somehow this entity actually warrants a market value of an 11% yield to maturity on their 2-year debt. Amazing.

I am not interested in these entities unless if they were generating a sufficient amount of cash in relation to their debt, and in most cases they do not. This means that refinancing risk is going to be crucial for these entities – while today they might get the financing, tomorrow they might not. It is at those moments where an investor will make the optimal risk/return ratio. Today an investment will just result in a mediocre risk/return.

There were a lot of offshore drillers that are clearly in trouble, and a lot of energy-related entities in trouble. In general, I am not interested in these (in addition to having enough exposure to energy bonds via Teekay debt).

Finally, anything that did seem to be a reasonable candidate had a chart resembling this:


I picked Titan International (NYSE: TWI) just as an example and not something I am interested in purchasing (at current prices). It is an automobile parts manufacturing company and is fairly easy to analyze – $200 million cash in the bank, a $60 million debt issue due in January 2017 that they will pay off, and $400 million due October 2020 (which you see in the chart above). The coupon is 6.875% and the debt is senior secured, and trades at a YTM of about 8.5% at present. The corporation in the first half of this year generated about $11.6 million in free cash flow. Historically they seem to be a cash generation vehicle for management teams.

It doesn’t take a Ph.D in finance to realize that they will likely have to refinance the debt when it comes to maturity in four years. They will probably be able to do this, but who knows?

This same bond traded at nearly a 19% YTM back in February when the whole market was going haywire.

Just because the bond is trading at higher levels (lower yields) doesn’t mean that they are valuable today. But if you did buy today you’ll get a high single digit return in the compensation for the risk that you’ll be dealing with the Chapter 11 proceedings of an auto parts manufacturer that doesn’t have the capacity to generate a huge amount of cash in a very low-margin industry.

Is it worth 19% to take this risk? Absolutely. Is it worth 8.5%? Probably not. Today you can get that debt for about 94 cents on the dollar, but if you got the same debt for 80 cents a year from now, you will get a much better return (assuming the aforementioned default does not occur).

The other question I ask myself is whether we’ll likely see something in the next couple years that will resemble a bond refinancing crisis. While the future is always difficult to predict, there will always be something that will cause panic in credit – and it is in these times that one must dive in deep, just like I did back in January and February.

There are numerous examples like this littered in the bond markets today – lots of mediocre companies with bonds trading at single digit yields to maturity. Even worse are the over-leveraged messes that are just asking for recapitalization when the market sneezes.

So overall, the pickings of my bond market research have been very slim.

The results are quite depressing – out of looking at approximately a hundred issuers, I’m only interested in doing a deep research session on one corporation. Also, my initial take on this entity wouldn’t be for their debt – it would be an equity investment. My initial instinct says that their equity could double in a year, while their debt yields 7.6%. I’m eager to start the research process.

Looking at this whole exercise, I realize this following statement might be the biggest piece of confirmation bias about my own portfolio, I believe the pieces of corporate debt that I currently own represents the best risk/reward available on the publicly traded markets today. I just don’t see anything else out there worth putting capital in the corporate debt markets. It’s a classic case of doing a lot of work but achieving no tangible results for the portfolio.

Turning down a very likely 12% annualized return

There is a catch to the title – the 12% annualized return is in the form of a 6.6% return over six and a half months.

I have mentioned this before (at much higher yields) but Pengrowth Energy debentures (TSX: PGF.DB.B) is probably the best low-risk/medium-reward opportunity in the entire Canadian debt market today. At the current price of 97 cents (plus 5.5 months of accrued interest payments), you are nearly guaranteed to receive 100 cents plus two interest payments of 3.125% each. The math is simple – for every 97 cents invested today (plus 5.5 months coupon which you’d get 6 months back at the end of September), you will get 103.4 cents on March 31, 2017, the maturity date. This is a 6.6% return or about 12% annualized.

By virtue of Pengrowth’s debt term structure, this one gets the first crack at being paid by their billion-dollar credit facility which was untapped at the last quarterly report.

The only risk of any relevance is that the company will opt to exchange the debt for shares of PGF at 95% of the 20-day volume-weighted average price, but considering that the debenture face value is $126 million vs. the current market cap of $1.1 billion, the equity would not incur too much toxicity if management decided to do a virtual secondary offering at current share prices.

The company did give plenty of warning that at June 30, 2016, current oil/gas price levels and a 75 cent Canadian dollar would result in them potentially blowing their covenants in mid-2017. But this is of little concern to the March 31, 2017 debenture holder. They will get cashed out at par, either in cash or shares.

I own some of these debentures, which I purchased earlier this year when things were murkier and much more attractively priced. Given some recent liquidations in my portfolio, I could have reinvested cash proceeds into this apparently very low risk proposition. But I did not.

So why would I want to decline such a no-brainer opportunity and instead funnel it into a short-term bond ETF (specifically the very-low yielding Vanguard Short-Term Canadian Bond Index ETF at TSX:VSB)?

The reason is liquidity.

In any sort of financial stress situation, debt of entities that are “near guarantees” are traded for cash, and you will suddenly see that 97 cent bid moved down as entities are pressured to liquidate. For securities that are precious and safe, such as government AAA bonds, there is an anti-correlation to market pricing that occurs and ETFs holding these securities will be bidded up in response.

VSB is not something that you are going to see move up or down 5% overnight in a real panic situation, but it will retain its liquidity in stressful financial moments. The selection of VSB is different than the longer-term cousin, which has more rate sensitivity, but something has changed in the marketplace where equity and longer term debt asset classes have decided to trade in lock-step: as demonstrated in last week’s trading in Japan and the Euro-zone. When equities and long-term government debt (nearly zero-yielding, if not negative) trade in the same direction, it gets me to notice and contemplate what is going on.

The tea leaves I have been reading in the market suggest something strange is going on with respect to bond yields, the negative-interest rate policies and their correlation to equities. I’m not intelligent enough to figure it out completely, but what I do know is that putting it into so-called “low risk” opportunities like Pengrowth debentures come at future liquidity costs in cash if I needed to liquidate them before maturity. Six and a half months can be a long time in a crisis situation, and we all see what is going on in the US President Election – markets are once again seriously considering Donald Trump’s election now that Hillary clearly isn’t healthy enough to be Commander-in-Chief of the US Military. The public will ask themselves: If she can’t stand up to attend a 15-year memorial of 9/11, what makes you think she will be able to stand up when the terrorists strike the homeland again?

The markets have vastly evolved since last February where things were awash in opportunities. Today, I am seeing very little that can be safely invested in, which is getting me to change what I am looking for, but also telling me that I should relax on the accelerator, raise cash, and keep it in a safe and liquid form until the seas start getting stormy again. And my gut instinct says exactly that: winter is coming.

Bombardier debt trading like it is investment grade again

What a difference a year makes for Bombardier’s (TSX: BBD.A, BBD.B) credit profile:


Their credit profile over the last year has improved considerably – they can now tap debt capital from the market at reasonable rates. Right now the closest comparable is the 8.5 year maturity for 8.5% yield.

The market is clearly believing that their solvency concerns are over. This would likely get cemented (and yields will compress even further) on successful deliveries of CS100/CS300 jets to their customers, of which two are already delivered and 356 are currently in the pipeline.

The more junior preferred share (TSX: BBD.PR.C) with a 6.25% coupon is trading at a current yield of 9% (eligible dividends), which should continue to go lower as confidence increases in the firm’s ability to be financially sustainable with the C-series. The rumours of the pending Learjet sale would also be an injection of capital if it did occur, but it does not appear that this is necessary, nor is the rumoured injection of capital by the Government of Canada (although this might occur to give future customers the impression that the government will not let the company fail).

The common equity remains pinned around CAD$2/share, and there is considerable overhang from the warrants issued from the two Quebec financings. I doubt that there will be cash dividends on the common shares until the turn of the next decade.

Retail investment in long-dated fixed income securities

When I read headlines like the following: “Investors hungry for returns are piling in Canada long-bond ETFs at a record pace“, I’d start to get concerned if I held these instruments. Investing in long-term government debt at this time feels like return-free risk compared to just stuffing the cash underneath the mattress.

Canada 10-year government bonds are barely trading above a percent:


The US 30-year treasury bond exhibits a similar characteristic – yields have crashed:


The prototypical Canadian long-bond ETF is TSX:XLB and they have done reasonably well. Since long bond yields have plummeted, investors have seen capital gains.

This leaves a few questions. Will yields go negative in North America? How will pensions actually be able to realize their assumed 7-7.5% net returns when they have to maintain a bond allocation with a 1.1% YTM? How much has quantitative easing programs outside of our borders affected our bond yields? What effect will this have on our currency?

Lots of questions, but few answers. Instinctively, I’d rather want my cash in cash rather than long-term treasury bonds. This has not been a winning attitude, but unless if you’re anticipating negative yields like Western Europe, it is tough to imagine rates going lower from here on in.

Re-examining Teekay Corp

Back in April 2016 I stated I invested in the unsecured corporate debt (January 2020) of Teekay Corp (NYSE: TK). Yields have compressed considerably since then:


Part of this is due to a $100 million equity offering that was purchased by certain insiders, including the 37.7% holder Resolute Investments, Ltd. They paid US$8.32 for their shares which are trading at a market value of about $7.15 as I write this.

Teekay also significantly rectified a capital funding gap in their Teekay Offshore (NYSE: TOO) daughter entity with the issuance of preferred shares, conversion of preferred shares to common units, and other generally dilutive measures to their common unitholders. This will also involve TK with a higher ownership of TOO and the solving of TOO’s liquidity issue will serve to be positive to the payment of TK debt.

The last few trades of TK debt going on today (volume of roughly $400k par value) has been around 90 cents on the dollar, corresponding to a yield to maturity of about 12%.

What I expect to happen is the market will continue to normalize and ideally then we will see yields compress to result in above-par prices. In the meantime I get paid interest income. This is a reasonably heavy portfolio weighting.

Fixed income purchase

As alluded to in my last quarterly report, I have been looking for some fixed income securities that have relatively short durations, marginability, and with a credit risk profile of next to nothing, yet maximizing yield.

Late last month I purchased a secured corporate bond. The debt is the only issue outstanding of the issuer and it was purchased at a mild discount to par. The underlying issuer obtained a credit rating for the debt and it is in the B’s. The issuer itself has a cash balance that is about 40% higher than the amount of debt outstanding. It is also profitable, generating cash flows, and has been doing so for quite some time. There is no good reason to believe that these cash flows will materially change between now and maturity. The debt is covenant restricted, only enabling the issuer to repurchase equity linked to the amount of income it produces. Not surprisingly, the company in question has been repurchasing their debt on the open market at a discount to par.

Yield to maturity that I received on my purchase: 10.0%.

I am not sure who was asleep at the switch as I did get the bonds at the bid, in a size that was sufficient to make me happy. Quite frankly I was surprised to see the trade executing.

The funny thing here is that the capital that I am required to lock up for the next few years (the maintenance margin is approximately 50%) will actually decrease my long-term performance figures, but in terms of the risk/reward ratio, this investment is a slam dunk. I am not aiming for the best returns, I am aiming for the best risk/return ratio.

Teekay Corporation – Debt

Over the past couple months I have accumulated a substantial position in Teekay Corporation’s (NYSE: TK) unsecured debt, maturing January 15, 2020. The coupon is 8.5% and is paid semi-annually. I am expecting this debt to be paid out at or above par value well before the maturity date. The yield to maturity at my cost I will be receiving for this investment will be north of 20% (and obviously this number goes up if there is an earlier redemption).


I was really looking into the common shares and was asleep at the switch for these, especially around the US$7-8 level a month ago. Everything told me to pull the trigger on the commons as well, and this mistake of non-performance cost me a few percentage points of portfolio performance considering that the common shares are 50% above where I was considering to purchase them. This would have not been a trivial purchase – my weight at cost would have been between 5-10%.

However, offsetting this inaction was that I also bought common shares (technically, they are limited partnership units) of Teekay Offshore (NYSE: TOO) in mid-February. There is a very good case that these units will be selling at US$15-20 by the end of 2017, in addition to giving out generous distributions that will most likely increase in 2018 and beyond.

The short story with Teekay Corporation debt is that they control three daughter entities (Teekay Offshore, Tankers, and LNG). They own minority stakes in all three (roughly 30% for eachUpdate on April 26, 2016: I will be more specific. They have a 26% economic interest and 54% voting right in Teekay Tankers, a 35% limited partner interest in Teekay Offshore, and 31% limited partnership interest in Teekay LNG), but own controlling interests via general partner rights and in the case of Tankers, a dual-class share structure. There are also incentive distribution rights for Offshore and LNG (both of which are nowhere close to being achieved by virtue of distributions being completely slashed and burned at the end of 2015). If there was a liquidation, Teekay would be able to cover the debt with a (painful) sale of their daughter entities.

Teekay Corporation itself is controlled – with a 39% equity stake by Resolute Investments, Ltd. (Latest SC 13D filing here shows they accumulated more shares in December 2015, timed a little early.) They have a gigantic incentive to see this debt get paid off as now do I!

The mis-pricing of the common shares and debt of the issuers in question revolve around a classic financing trap (similar to Kinder Morgan’s crisis a few months ago). The material difference that the market appears to have forgotten about is that Teekay Offshore (and thus Teekay Corporation’s) business is less reliant on the price of crude oil than most other oil and gas entities. The material financial item is that Teekay Offshore faces a significant cash bridge in 2016 and 2017, but it is very probable they will be able to plug the gap and after this they will be “home-free” with a gigantic amount of free cash flow in 2018 and beyond – some of this will go to reduce leverage, but the rest of it is going to be sent into unitholder distributions assuming the capital markets will allow for an easy refinancing of Teekay Offshore’s 2019 unsecured debt.

At US$3/share, Teekay Offshore was an easy speculative purchase. Even at present prices of US$7/share, they are still a very good value even though they do have large amounts of debt (still trading at 16% yield to maturity, but this will not last long).

The absolute debt of Teekay Corporation is not too burdensome in relation to their assets, and one can make an easy guess that given a bit of cash flow through their daughter entities, they will be in a much better position in a couple years to refinance than they are at present. They did manage to get another US$200 million of this 2020 debt off at a mild discount in mid-November 2015, which was crucial to bridging some cash requirements in 2016 and 2017. The US$593 million face value of unsecured debt maturing January 2020 is the majority of the corporation’s debt (noting the last US$200 million sold is not fungible with the present $393 million until a bureaucratic process to exchange them with original notes) – I’d expect sometime in 2017 to 2018 this debt will be trading above par value.

The debt can be redeemed anytime at the price of the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points, plus accrued and unpaid interest to the redemption date.

This is a very complex entity to analyze as there is a parent and three daughter units to go through (and realizing that Teekay Corporation’s consolidated statements are useless to read without dissecting the daughter entities – this took a lot of time to perform properly). I believe I’ve cherry-picked the best of it and have found a happy place to park some US currency. I still think it is trading at a very good value if you care to tag along.

Pinetree Capital – Redeeming debentures

Pinetree Capital (TSX: PNP) today has announced it is redeeming $10 million of its debentures, at par value plus accrued interest, effective April 30, 2015.

As readers are aware by my previous rantings about Pinetree, their debt has been a remarkably good deal, especially around the 70 cent range, but they are still a reasonable risk/reward at 80 cents. The extra security that was arm-wrestled from management once they blew the covenants is icing on the cake.

Debenture holders will be cashed out pro-rata, which works out to an 18% redemption of debt. I’ll be hard-pressed to find a better alternative for the cash, but I’ll be happy to have it sitting in the bank account until such a time.

The market value of the debentures was bid/ask 80/83 cents and considering the cash-out is at par, this will likely result in an increase in the quoted price for the remaining debentures.

Notable to this announcement is that this is going to be funded by cash on hand, which implies that the company has been doing some liquidation of its non-disclosed holdings (these would be less than 10% ownership stakes in various firms). There has only been a minor trace of activity on SEDI on their 10%+ ownership stakes (the two largest that are publicly known is POET Technologies (TSXV: PTK) and Sphere 3D (Nasdaq: ANY)).

Also notable is that this is the first $10 million of the $20 million that is required to be redeemed by July 31, 2015. Up to half of the remaining amount can be done through open market transactions and also the company has the option of redeeming 1/3rd of its debentures in the form of equity, which has not been the case to date.

Finally, Pinetree has not released its 2014 year-end audited financial statements, but one can assume that they will be able to with this redemption notice. The annual statements are due on March 31, 2015 otherwise very bad things happen to reporting issuers that do not report.

Pinetree must have a debt-to-assets ratio of 50% up until October 31, 2015 and then after that it must be below 33% otherwise it will be in default of its debt covenants (once again). We should get a better view of what may occur once they file their 1st quarter report. Achieving 33% is going to be made much easier once they complete $20 million in redemptions and the question is whether debenture holders are going to receive equity or not (which would likely give debtholders control of the firm).

I’m expecting there will be a reasonably decent chance that investors in the senior secured convertible debentures will be made whole and also be able to collect a 10% coupon between now and the May 31, 2016 maturity date.

Pinetree Capital Debentures – Buying a dollar for 80 cents

The ongoing saga of Pinetree Capital (TSX: PNP) continues.

After coming to an agreement (after what functionally amounted to a financial game of chicken when management “blinked”) with over 2/3rds of the debenture holders in a very private setting, management has been ousted, and a new agreement has been put in place that grants debt holders security over the assets of the entire company.

There is also a provision to repurchase debentures as follows:

On or prior to July 31, 2015, the Company shall reduce the aggregate principal amount of the outstanding Debentures by at least $20,000,000 by redeeming outstanding Debentures and, at the Company’s discretion, repurchasing outstanding Debentures up to a maximum principal amount of $5,000,000 pursuant to a normal course issuer bid.

There will likely be some market action in the upcoming months as the company attempts to repurchase its debt. Of course by doing so the price will get closer to par value. There is also a redemption to equity feature which has been opened by the debtholders, as the following language was inserted into the indenture agreement:

The Initial Debentures will be redeemable prior to the Maturity Date in accordance with the terms of Article 4, at the option of the Company, in whole or in part from time to time, on notice as provided for in Section 4.3 for the Redemption Price. The Redemption Notice for the Initial Debentures shall be substantially in the form of Schedule B. In connection with the redemption of the Initial Debentures, the Company may, at its option, and subject to the provisions of Section 4.6 and subject to regulatory approval, elect to satisfy its obligation to pay up to one-third of the aggregate principal amount of the Initial Debentures to be redeemed by issuing and delivering to the holders of such Initial Debentures, such number of Freely Tradeable Common Shares as is obtained by dividing such amount by 95% of the Current Market Price in effect on the Redemption Date. If the Company

The company will have the choice of either paying out the debtholders in cash, or by issuing equity, or a combination of both up to a one-third allocation of equity, depending on what the market price is.

Management will be compelled to dispose of securities from the newly constructed investment committee, which consists of two directors that were nominated by the debenture consortium:

The Company shall adhere to the decisions of the Investment Oversight Committee, except in cases where the Company’s board of directors has overruled a decision of the Investment Oversight Committee. For greater certainty, the Investment Oversight Committee has the power to override a decision of the Company’s management to purchase or dispose of any securities and to make a binding decision to dispose of any security now held or that may be held by the Company in the future, provided that such decisions are subject to the approval of the board of directors of the Company.

In addition to having a net asset value above the market value, in addition to an anticipation of an equity conversion, the equity of Pinetree has risen. It will likely rise to a point that reflects a modest discount to NAV, and the company is required to disclose its audited financial statements by the end of March.

Pinetree’s two largest holdings, Sphere3D (Nasdaq: ANY), and POET Technologies (TSXV: PTK), have done quite well and will likely provide cash for paying off debtholders.

Finally, lest the company gets its balance sheet out of position, it is required to have a debt-to-assets ratio of 50% up until October 31, 2015 and then afterwards it will go down to 33% as per the original covenant. This will assure the debtholders will be in the driving seat until they are paid off in full. If the company defaults on these provisions, the debtholders will set terms of forbearance and will likely be in a position to be paid off no matter what, as at this point there will only be $35 million outstanding and being first in line to collect.

The conclusion is obvious: barring a collapse in Pinetree’s (admitting they are less than AAA quality) holdings, the original thesis as presented holds true. Debtholders will very likely get the chance to get out at par and collect a very happy 10% coupon in the meantime. The fact that debtholders now have a general pledge of asset security over the entire company is icing on the cake – it does not give Pinetree any maneuvering room until they are paid off first (i.e. by pillaging debtholders by putting somebody ahead of line with them – see Armtech Infrastructure for the end of that sad saga).

I will discount the fraud scenario as it is perfectly obvious by the February 19, 2015 SEDAR disclosures that debentureholders got a very good look at the corporation as they made their negotiations. I would expect the audited financial statements to be published in mid-month. The only accounting decision of any substance would likely involve a valuation allowance offsetting their currently existing tax asset of $13 million (this would have an impact on their NAV, but this can get unlocked in some other transaction of substance).

The maturity date for the debentures are May 31, 2016, but effectively debtholders will know the game is over by October 31, 2015 and the market will treat the debt at that time as more or less being a done deal (i.e. at least 95 cents on the dollar, if not more for the 10% interest accrual).

With the conservative assumption that debtholders will get 95 cents on the dollar, it looks like from existing market prices (roughly 80 cents), an investor will achieve a 20% capital gain and another 10% interest coupon between now and whenever they get cashed out. I’ll call that a 30% reward for little risk at this stage of the game.

It is really a sad story for me as I cannot think of any other place where capital could be allocated for such a good risk/reward situation. I am riding the coattails of some financial institutions that have their vested interests in total alignment with mine – i.e. taking the reins of the underlying company to ensure we are paid back. Backing up this claim is the following clause inserted into the indenture:

The Initial Debentures are direct secured obligations of the Company, and rank senior to all other indebtedness for borrowed money of the Company. In accordance with Section 2.12, the Initial Debentures rank pari passu with each other. Notwithstanding anything else to the contrary in this Indenture, no additional Initial Debentures and no additional series of Debentures shall be issued under this Indenture or under indentures supplemental to this Indenture.

I have little opinion on the equity other than that it should trade a shade below net asset value, plus some amount for the implied value of the future capital loss carryforwards for an inspiring acquirer of Pinetree. Unlike Aberdeen International (TSX: AAB), new management at least has the ability to show they pretend to care about shareholders instead of using the publicly traded vehicle as a personal enrichment device.

This might be my last post on Pinetree Capital as the story appears to have come to a close, but “never say never” in these very strange and weird capital markets we live with.

Disclosure – Long on a non-trivial position of Pinetree Capital debentures.

Pinetree Capital Re-visited: Another debt opportunity

Please read my prior article, Pinetree Capital: Possibly the worst closed end fund ever, for a good backgrounder on what I am writing about here.

How would you like it if you bought an equity interest in 70 cents per share for the market price of 20 cents?

Normally most people would snap up on the opportunity. Every dollar you invested is backed by over 3 dollars of real net financial assets! What could be the catch?

The catch, of course, is that the assets you are purchasing are illiquid, of dubious value beyond a thin market quotation, and is managed by somebody that has an impressive track record of losing money.

Otherwise the market would not be giving such a steep discount to the whole consolidated operation.

What is interesting is that the capital fund continues to be hampered by debentures that have a 33% ceiling on the debt-to-asset ratio. Last year the fund breached this and had to pay handsomely for the privilege of obtaining more time.

Management has a huge incentive to not let the debtholders take over – surely the big players in the debenture space would liquidate the fund piece by piece and would not be hamstrung by pesky management or their insanely huge salaries.

The debentures, by virtue of the debt-to-asset covenant, are functionally secured, first-in-line debt, next in line to the margin loans the fund has been taking to fund its incredibly speculative investment portfolio.

They also mature in 1 year and 7 months time.

Now that the whole world stock market has tanked over the past month, speculative issues get hammered the most. Pinetree has been suffering, and its equity has thus gone down to the huge discount over stated asset value that you see today.

There is probably some value in the equity, but it will take time to realize the value due to liquidity issues.

However, the real value is in the debentures mainly because they have the noose over management at the moment, who have shown every indication they will dilute and use every trick in the book to maintain control of their lucrative salaries.

Who wants to invest in this train wreck? I don’t know, but if you have a very thick stomach wall for scraping the bottom of the investment barrel, consider purchasing some Pinetree Capital Debentures (TSX: PNP.DB) if you feel brave. There is a reasonable chance that you will be made whole.

Disclosure: I own the debentures.