Cineplex – Second-lien secured bonds

According to a Bloomberg article, Cineplex (TSX: CGX) is receiving a positive reception for a second-lien secured bond offering:

The company plans to issue C$250 million ($196.5 million) of second-lien secured senior notes due 2026 to yield 7.5% to 7.75%, according to people familiar with the matter. That compares with preliminary discussions with investors yesterday for 8% to 8.25%, said the people, who asked not to be named before the deal is completed. Bookrunners had gathered around C$1 billion in preliminary indications of interest as of Thursday.

Even before COVID-19, the only thing the business had going for it was near-monopoly status for in-person cinema. Otherwise, it is a financial mess of lease liabilities and an overall market that continues to be supplanted by Netflix and other content providers.

When reading Note 16 of their last audited financial statements, they have CAD$506 million already outstanding in first-lien term and revolving facilities (and Cineplex received a covenant relaxation until the end of 2021 for this facility). In a CCAA arrangement, I would suspect this tranche of debt would get mostly everything. Perhaps there is more than half a billion in franchise value in a bankruptcy sale, but even then, who would want 750bps in compensation?

Good on Cineplex management for striking while the iron is hot – I would be doing the same, and would try to up-size the offering while I’m at it. I guess in a topsy-turvy world where huge entities are throwing away capital into digital beanie babies, it makes sense. I was busy pooh-poohing the convertible debt offering (TSX: CGX.DB.B), which is now trading at about 30 cents over par value, so what do I know? Nothing.

Atlantic Power merger arbitrage

There’s quite the spread developing on Atlantic Power’s shares and preferred shares.

A special meeting of shareholders (record date February 16, 2021, special meeting date April 7, 2021) is going to be held. The Debentures (TSX: ATP.DB.E) have their special meeting on March 18, 2021. The deal after the special meeting of shareholders should close shortly after (presumed) approval.

(NYSE: AT) – US$2.95 (US$3.03 if completed) – +2.7% or +16% annualized

The preferred shares are all in a tight range and roughly the same as well. I will use AZP.PR.A as the lead example:

(TSX: AZP.PR.A) – CAD$21.71 (CAD$22 if completed + $0.30 dividend) – same spread

The management information circular should be coming out very shortly.

Right now I’m happy to leave this as “near-cash” in my consolidated portfolio, earning a return that will not amount to be a gigantic amount in absolute terms, but percentage-wise it doesn’t make financial sense for me to bail out on it unless if I have a really compelling alternate. I’m guessing the relatively wide arbitrage spread is because most others have already bailed out and wanted to take the cash today instead of the cash in April.

Apologies – Email subscriptions are now disabled

I was using WordPress plugin that is supposed to email subscribers whenever there is a new post on the site.

Unfortunately when doing some maintenance, I have been informed it has gone haywire and has sent out multiple emails to everyone of historical posts. I have since confirmed this.

This is not intended nor desirable behaviour.

I have deleted the email to subscriber plugin and have attempted to stop the emails. I have also entirely eliminated the email database that goes with this plugin. When I say I won’t be selling your email address, I really mean it!

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I apologize for the mass mails that were sent out. Sorry about that.

Inter Pipeline / Brookfield hostile bid

Brookfield Infrastructure (TSX: BIP.UN) is offering C$17.00 to $18.25/share for Inter Pipeline (TSX: IPL).

Inter Pipeline is a relatively small pipeline operator, with well-placed lines criss-crossing Alberta and Saskatchewan with oil and gas and natural gas liquid refining capacity. They have spent a ton of money on a polypropylene plant which was a fairly game-changing move for the company strategically, representing a horizontal move into refining petrochemical products. The quantum of debt they took out to build this plant is such that their leverage is quite high given their existing financial situation. The rest of the pipeline business is solid. They had a storage operation in Sweden and Denmark which they also are in the process of disposing of.

I’ll reserve judgement other than stating that I have consistently noted that Brookfield tends to try to acquire things for about 15-20% less than what such entities normally would/should be bought out for. I’m not criticizing their actions (it works very well for them!) but if I was a shareholder in a target of Brookfield, I would be very cautious on valuation.

The next comparator in this space would be Keyera (TSX:KEY), which is in a similar space but its geography is concentrated in the Montney/Deep Basin area of Alberta (the area hugging east of the Rocky Mountains). Next up would be Pembina Pipeline (TSX: PPL) but they have been the positive recipient of the entrails of Kinder Morgan’s Canadian unit, and are considerably bigger in scope.

We have seen a ton of consolidation in the oil and gas space – just yesterday, ARC (TSX: ARX) and 7 Generations (TSX: VII) announced a nearly equal share swap merger. The list of individual names in the public space is shrinking by the week.

I might be too old to be investing anymore – Mogo Finance

Look what popped up on my radar today – Mogo Finance (TSX: MOGO), primarily due to its massive price increase.

I’ve been looking at them on and off since they merged with Difference Capital a couple years back (this was to save MOGO as an entity since they were heavily indebted and no proper refinancing routes with their ultra-expensive line of credit). I had a prior investment in the debentures of Difference Capital, and hence the interest (they had an equity interest in MOGO).

Mogo also had a matter with their convertible debentures, which were extended, this was back in April of last year.

My very quick take of Mogo at the time was that they were not making money, and they were quite unlikely to make money given that their credit facility was priced at 12.5% plus LIBOR, although this was re-priced to 9% plus LIBOR (effectively 10.5%). They also had a non-publicly traded debenture that was also expensive (note 10 in their Q3-2020 financial statement if you care to look).

So when you look at the stock chart above, instantly, you realize that the business is now going to get an extension on its life because they will be able to raise equity financing.

Why did they get such a bounce?

Just take a look at their website. They are trying to be like a Canadian version of Robinhood, mixed in with some consumer finance.

And now, of course, they are getting into Bitcoin.

I can see why the market is ramming up the stock of this company, which did $2.3 million in operating income for the first nine months in 2020. A market cap of CAD$500 million is cheap in comparison to what Robinhood’s last secondary offering was reported to do (apparently during the Gamestop fiasco their revised valuation was at US$30 billion).

I am somewhat mystified and frustrated at my lack of imagination to correlate the two together. Was this thing worth a stab at a valuation of CAD$50 million (plus debt?). The convertible debentures would have been a relatively cheap entry point, with some seniority over the common.

When I look at my portfolio at present, it is most definitely an “old man’s” portfolio of very real-economy type stocks. The most technological of them is Corvel (Nasdaq: CRVL) which produces software that is in a dominant niche (my one and only post on it is here), but this is hardly a millennial starling! I can’t be the only investor out there that is getting this type of feeling that I am getting too old for the markets.