USEC Inc. (NYSE: USU) is going to undergo a pre-packaged recapitalization to refinance a convertible debt offering that is maturing in 2014 that the company has no chance of repaying. Existing equity holders will get 5% of the newly reorganized entity, which constructively means the common shares presently trading represent 1/20th of the current market capitalization.
There is much more to the actual operating business in terms of strategy – uranium refining is not exactly a wide-scale industry and proper analysis requires looking at more geopolitical and government considerations than most investors would probably want to swallow.
After they announced their pending pre-packaged bankruptcy filing, I put this on my research radar. The risk/reward seemed quite good at around $3.50/share, but unfortunately the market caught up in a very efficient manner and while I still believe the entity is somewhat undervalued at its present $6.30/share, the risk/reward metric is not favourable enough to take a position. The proposed recapitalization is still contingent on the approval of a couple strategic partners, but they are receiving a stake in the new entity which they should be accepting.
So I will put this equity in my discards pile – feel free to make what you wish out of this. I’m still rather miffed that low priced companies that I have been researching lately are ruthlessly taken to more efficient prices before I can even complete any reasonable amount of due diligence.
Not that there’s any need for more equities to research, but one potentially interesting restructuring name is LDK Solar. Its equity looks overpriced to me. If senior obligations are being offered 20 cents on the dollar to cash out (with only 40% of holders so far listening to–and not necessarily supporting–this proposal) it seems to me a current of ~270 million USD is a bit rich. A complicated story, of course, with government(s’) involvement and ongoing forbearance…
I generally am very adverse to investing in Chinese-based securities and still have not pulled the trigger on any just because of my inability to properly investigate the validity of certain businesses. Some appear very tempting and indeed, very frustrating since I’ve been looking at CTRP since 2012.
I’m sure somebody that is proficient in Mandarin, simplified Chinese and some networking skills on the ground can make a fortune with Chinese equities, but unfortunately I am not one of them.
Likewise; I’ve only invested on the short side (where I was suggesting LDK’s equity). There’s still a mountain of risk in that, of course.