Originally Posted by
Enumerate
If you read the half year accounts and the various prospectus releases - I think you can glean an insight into managements plans.
1) The most telling point, as I have mentioned before, is that the recently introduced equity assets (Scales, Helicopters) are not part of the charging group (although, since the shares are held by SCF, which is part of the charging group, these shares could be sold). This means that these equity asset units are to remain intact. It is also clear that these assets are non-strategic - they are simply there to bolster the balance sheet to satisfy the Trust Deed covenants.
2) The "shock loss" in the half year accounts (Dec 2009) almost wrote off the equity in SCF. We have had two announcements that recoveries of $200m and now $250m have been achieved since this date. We will get the full year accounts that reflect these better than expected recoveries and the infusion of the equity assets. I think the most likely outcome, for the full year accounts, is that recoveries will outstrip impairments by a significant margin. I think we will see the SCF balance sheet fully restored.
3) Full year, we will have a reported loss. The key point for me, is that this loss will be more than covered by the introduced equity assets.
4) The "super secured" Torchlight loan is more like bridging finance - to lubricate the wheels of the restructure.
5) The cash flow issues with the "wall of debt" are the key risk. An orderly downsize of SCF to a $1billion finance business would be the best outcome for everyone. I think this task is achievable if debenture roll overs and new investments hold up. (Remember, this is a business that is down sizing - ultimately, they do not need to borrow, in the future, as much as they have borrowed in the past).
6) An equity partner would be nice only if they can lend assistance with the "wall of maturities". An equity partner would allow Allan Hubbard to take back his equity assets (Scales, Helicopters, Dairy) as consideration for him selling down part of his SCF shareholding. I do not expect that a recapitalisation of SCF is needed (which may surprise a few people - but have they really looked at the numbers?). Only a restructuring is needed - replace equity assets with capital and sell off the "bad bank" on reasonable terms.
Of course, the situation will be revealed, in detail, when we get the full year accounts.
If I am "near the money" on this ... and a cash management solution can be found to the "wall of debt" issues ... then the SCFHA's will be worth $1 per unit and the listed bonds will trade at about 8%.
All the information is out there ... lots of you have accounting backgrounds ... you should either be able to pick holes in my assessment or you could stand to make a great deal of money through a number of well timed investments.