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7:57 am
January 20, 2012
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somrh
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I can't speak for anyone else but I certainly didn't. And I think it would have been hard since there was a period of time in there when no sales were occurring. I even put in a bid for the ask price with the same size and got no bite.
It looked as though after some of the first initial trades the market maker realized the price level wasn't appropriate and took some time to reconsider before setting Bid/Ask prices again. But I'm not entirely sure how that works so I may be entirely off base here.
Either way, someone could have already landed a 5x increase if the were lucky enough.
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1:48 pm
January 18, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 183 |
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So no one managed to get any of these OTC shares when they were in the 0.60 range eh? Is that pretty common for this type of thing?
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12:19 pm
January 11, 2012
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somrh
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compoundinglife said:
Clearly if the rise in stock causes your short to exceed your margin then they can demand you cover or put down more collateral but are there any other situations where they could require you cover, assuming your account is in good order?
The other sitution is lack of shares to borrow. In order to short stock, you have to borrow shares. For a retail investor like me, I'm basically going to be borrowing from another retail investor who has shares in a margin account. At any time they could sell their shares in which case my broker will either have to locate other shares for me or will require me to cover since I actually have to have shares to borrow to remain short. There is also hard to borrow fees that can be charged to me if my broker has difficulty borrowing shares but manages to do so. Those can be expensive.
My best guess (without doing any math) is that this would be a losing trade (though limited) if the company goes bankrupt (likely?) or if the company takes off in the near term. The only way I think I could make good money on this is if the company lasted a while. That way the dividends could pay for the short position I might actually get the preferred shares for free (I think the yield on them is about 20% right now is it not?)
…..
On that note, I've been busy as of late but would like to take a closer look at OSH if I get the chance. It's trading around $15 and I have a feeling that may be very cheap. Like you, I'm going to continue to monitor OSHSP. Volume on it has been decent enough so there are people that are perhaps trading the volatility (I'm still sticking with my thesis that the funds are already closed out given the large volumes over the first 3 days.)
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1:35 pm
January 7, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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somrh said:
So was this a missed opportunity?
Volume over the last 2 days was about 669K shares. While there are 4.8M outstanding, much of that is held by ESL and Fairholme. So what's the situation look like?
According to Yahoo finance, institutions held 90% of the float of SHLD. The float is 37M. So about 33M is held by institutions.
Fairholme has 16M shares. So that leaves us with 17M. (Am I mistaken for subtracting Fairholme here?) If we divide that by 22 we get about 775K that the institutions hold for the preferred shares.
So with 669K volume so far and only 775K held by institutions (other than Fairholme who I'm assuming will hold). That means the institutions may have already liquidated. (How much of yesterdays volume were new buyers closing out their position for a quick profit, I'm not sure.)
I've left out the retails because I don't think most will sell. There are two reasons for this:
1) Some of the retails are sophisticated enough to recognize the potential value.
2) It doesn't make sense to sell. If I have 100 shares of SHLD and I receive 4 preferred shares, I can sell them for, say, a grand total of $10. After transaction fees the only beneficiary is the brokerage firm. So regardless what the retail thinks they're worth, they may not sell for that reason.
So those are two reasons why many retails will not sell.
It is possible that all the big holders of float have liquidated, but you never know what will happen. I am just going to keep my eye on it and see if any other opportunities present themselves. Not sure about Fairlhomle, quite possible they could be sellers considering the amount of the outflows the fund has had due to short term performance. Although it is such a small part of AUM, so who knows. They have had billions in outflows so selling this out at a discount would only raise a few million and not make a dent.
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1:24 pm
January 7, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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somrh said:
I still want to see if there's a way I an create some goofy hedged trade on this. Since the preferred shares can pay out ATPG stock instead of cash, I think buying the the preferred and shorting the stock could be interesting. I'm not sure what ratios to do it in and what the risk/reward structure would be but I'm going to sit down and figure it out one of these days.
Interesting thought, when ATP first annouced the bad news in September I was interested in being long the prefs or a combo of the common and prefs. But as I mentioned I had a hard time getting orders excuted for the prefs. My concern with an arb situation on this stock is due to my lack of experience with selling stocks short (never done it).
For example if you are long the prefs and short the common, is there a chance that your broker could require you to cover your short before the stock crosses the price where the conversion rate kicks in? Clearly if the rise in stock causes your short to exceed your margin then they can demand you cover or put down more collateral but are there any other situations where they could require you cover, assuming your account is in good order? Presumably if this did happen the prefs will have gained as well somewhat in line with the conversion and you could sell your pref position to cover the short position if needed.
Lack of experience in these areas has caused me to stay away from risk arb situations other than pure long ones (such as PSD or JAVA). In general I find that the gains are too small to initiate a really small position and I don't feel comfortable enough yet to initiate larger ones. This of course assumes that you can even get orders executed at prices which present you with a worthy spread.
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10:42 am
January 5, 2012
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somrh
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Apparently OSH just fell 20% today. It's currently trading at about $17.50.
I think that gives it a market cap of about $105M. Revenues for last year were $661M and $682M the previous year. So it's selling at a low P/S.
Gaging FCF and earnings is not entirely clear. They have a couple of non-recurring charges that have made earnings negative for a few periods.
Book Value is about $16.80.
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7:27 am
January 5, 2012
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somrh
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So was this a missed opportunity?
Volume over the last 2 days was about 669K shares. While there are 4.8M outstanding, much of that is held by ESL and Fairholme. So what's the situation look like?
According to Yahoo finance, institutions held 90% of the float of SHLD. The float is 37M. So about 33M is held by institutions.
Fairholme has 16M shares. So that leaves us with 17M. (Am I mistaken for subtracting Fairholme here?) If we divide that by 22 we get about 775K that the institutions hold for the preferred shares.
So with 669K volume so far and only 775K held by institutions (other than Fairholme who I'm assuming will hold). That means the institutions may have already liquidated. (How much of yesterdays volume were new buyers closing out their position for a quick profit, I'm not sure.)
I've left out the retails because I don't think most will sell. There are two reasons for this:
1) Some of the retails are sophisticated enough to recognize the potential value.
2) It doesn't make sense to sell. If I have 100 shares of SHLD and I receive 4 preferred shares, I can sell them for, say, a grand total of $10. After transaction fees the only beneficiary is the brokerage firm. So regardless what the retail thinks they're worth, they may not sell for that reason.
So those are two reasons why many retails will not sell.
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7:17 am
January 5, 2012
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somrh
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compoundinglife said:
This reminds me of the ATPG preferreds which I have tried to buy a couple of times over the past month but never had my orders filled.
I still want to see if there's a way I an create some goofy hedged trade on this. Since the preferred shares can pay out ATPG stock instead of cash, I think buying the the preferred and shorting the stock could be interesting. I'm not sure what ratios to do it in and what the risk/reward structure would be but I'm going to sit down and figure it out one of these days.
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7:05 am
January 5, 2012
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somrh
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Well it fell off at the end of the day. Here's to hoping.
Can you explain why you think this just a means to defer financing? What I'm not getting is what difference the preferred shares make to their current position. All it really did was created a potential future obligaton; no capital was raised presently. If they didn't issue the preferred shares, how would their current capital position be?
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11:42 am
January 4, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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Last quote was 2.43 
My primary account is through etrade and they are not providing a bid/ask nor did they yesterday and in general I have seen that they normally don't provide one on very thinly traded over the counter issues. This reminds me of the ATPG preferreds which I have tried to buy a couple of times over the past month but never had my orders filled.
I think your analogy makes sense. The fact that it is not structured like a standard prefernce share means it is more likely to be misunderstood which of course could give them the chance to buy it back on the cheap. Orchard could be doing most of the buying here but we wont know that for a while. But lets say for sake of argument that they bought all the 250k volume so far, that would be around 1mil out of the 20mil in debt that is extinguished for a big discount. I doubt that is the case though.
Although I am not sure if I agree with the statement that the deal was setup to benefit insiders. It may have been setup to benefit orchard because they have no coupon to pay on the debt and they have the flexibility to pay when they are ready. Also insiders are all shareholders so in general if it benefits the insiders it should benefit all shareholders (not always true but in this case I think it is). Really the only people that loose are the funds holding SHLD who are forced to sell this off or the investors who do not take the time to understand it and sell the pref below its IV.
I agree that this is a "gem" at the right price. But at prices over 2.00 I don't find it as attractive unless there is some concrete indication of when they plan to redeem. Under the 2.00 price I feel the worst case scenario I imagined is still a pretty good situation.
But we shall see what happens, mr market may surprise us with a decent price in the future.
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7:08 am
January 4, 2012
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somrh
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Post edited 11:08 pm – January 3, 2012 by somrh
So I guess another way to think about this is that OSH will potentially pay a one time dividend of $4.16 per share (which amounts to about 17% of the current price). But the rights to the one time dividend are being given out as a security which the company may, at its discretion, buy back on the open market and which you can sell to others. So buying the preferred is like buying the chance to participate in this special dividend.
And this was constructed this way on purpose because it will primarily benefit insiders, directors, etc, because they're not going to sell them and it won't cost too much because the company can buy some of them back for cheaper than the $4.16.
Is this even making sense?
I frankly still don't know how to make sense out of these things which is why I really suspect these are great opportunities disguised as a pile of, well you know.
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6:13 am
January 4, 2012
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somrh
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| Member | posts 336 |
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There was something goofy that went on early on. The Bid-Ask was $.50-.50. So I couldn't figure out why any shares weren't trading. The sizes were 2500 v 1000. So I put in an order for 1000 @ $.50 and got no fill. I then watched as the Bid went up to $.55 and so on while Ask remained the same. My only guess (and I'm not entirely sure how this works) is that there were far more buyers than sellers yesterday morning. As a result the market maker couldn't decide on what the Ask price should be set at and stopped doing any trades.
There wasn't too much trading so my hope is that you're right and we'll see dumping of the preferred shares over the next week or so.
compoundinglife earlier said:
My guess is that this a way to spin off the debt from SHLD's books to shareholders in a way that does not drain the cashflow of the Orchard giving them basically as much time as they need to pay it back.
So I started looking at the debt and maybe this is what you had in mind. Orchard had $120M due in 2011 ("Senior Secured Credit Facility"). They were able to get an extension on $100M until 2013. The other $20M will need to be repaid (and presumably was). So maybe that $20M is related to the preferred shares as you're suggesting. That also gives a possible time frame for when they might be redeemed. If they decide to repay the $100M in 2013, perhaps they will also buy up the preferred shares at whatever discounted prices they can get and then redeem the rest sometime in, say, 2014. But that's just some of my idle speculation.
And so long as ESL doesn't sell their position (they'll have about 3M shares of the preferred shares) that still gives us some assurance. William Crowley is board chairman on OSH and president/CEO of ESL. So if he wants those preferred shares to get $4.16, he has substantial influence to make it happen. As a side note, ESL also has 49% of the voting rights to OSH.
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12:07 am
January 4, 2012
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Jae Jun
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Im only getting through this now. Though admittedly I'm not the best when it comes to analyzing debt and preferred stocks.
Very interesting read guys. So far the first day of action seems to resonate with what you are saying.
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2:03 pm
January 3, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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Ugh, closed at 1.65 with a volume of 172,796. When I placed my order the last trade was at 0.65 with a volume of 90k. Sad I missed out on this run up I should have woken up when the market opened to jump on it at 0.45-60 a share. Considering we are coming off a vacation period there may be some more funds dumping these in the near future.
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11:18 am
January 3, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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Volume on the prefs is over 90k now. I have had limit order open for a while at the current market price (0.65) for a while now and no bites.
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8:24 am
January 3, 2012
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somrh
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Trading so far:
OSH has traded 10K shares. The range has been $22-60. I think diluted EPS was somewhere in the $1-2 range so at least at first glance it's not that attractive. But I haven't given it that close of a look yet. It's currently at about $36.
OSHSP has traded 70K shares. So my guess is turning out right so far; people are dumping these quicker than they're dumping the OSH shares. The price range has been $.45-.50.
I put out a low-ball order just to see if it would get filled. I still want to understand the debt situation better.
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6:51 am
January 3, 2012
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somrh
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| Member | posts 336 |
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I believe this is it:
OSHSP
Graeme, I have no position in SHLD. I actually follow a spinoff blog via RSS:
http://www.stockspinoffs.com/
They just posted an update. I ignored this one before (I'm not sure why; maybe I wasn't interested in a home supply company) but I completely missed the preferred shares. I was hoping that they would be dividend paying but then I found out that they had no attractive qualities. So I became more interested.
I do want to take some time to analyze the debt that Orchard has because I believe it's maturing soon. They have a lot of debt and that could be a damper on liquidity and also could give some indication of when, if ever, they decide to redeem these preferred shares.
Plus there's no point in buying preferred shares for a company that won't be around long enough so I want to take a closer look there. And on top of that, OSH might turn out to be a good buy too. After all, they represent about 1% of SHLD so there will probably be some selling.
I may come back to this later.
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8:49 pm
January 2, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 183 |
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Thanks. Appreciate it! I have a registered TFSA account in Canada and turns out among other things (like shorting) I can't buy OTC. That'll change once I set up an account here in the US. Good ol risk adverse Canada…
It'll be interesting to see the volume numbers tomorrow. Somrh where did you come across this? You held SHLD?
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4:33 pm
January 2, 2012
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compoundinglife
| | Seattle | |
| Member | posts 23 |
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Post edited 8:34 am – January 2, 2012 by compoundinglife
Graeme said:
Really interesting stuff. It's kind of like dealing with an call option, except you don't know the maturity date, but you do know the maturity price. You say it probably starts trading tomorrow? I am a preferred shares newbie. Do you buy and sell like any other security?
"We intend to list our Class A Common Stock on the NASDAQ
Capital Market under the symbol “OSH” and to quote our Preferred
Stock on the OTCQB, and expect that trading for both will begin the
first trading day after the completion of the Distribution. We do not
plan to have a “when-issued” market for our Class A Common Stock
or Preferred Stock prior to the Distribution."
Prefs will be over the counter, I imagine the symbol will be dervived from the OSH ticker probably something like OSHP but I have not seen anything indicating exactly what the symbol is. But yes you should be able to trade them like any other security. Make sure to use limit orders instead of market orders to buy these things. I will be curious to see what the volume is, ESL and Fairholme collectively control 60% of SHLD, assuming Fairlholme does not sell OSH (maybe he will) the float for the prefs would be around 2 million shares or less.
The probability of a sell off IMO is good because these things are under the radar and potentially not widely understood. Although coming off of a holiday we might not see activity for a little while. Here's hoping they go under a $1 ;)
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4:23 pm
January 2, 2012
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somrh
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| Member | posts 336 |
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They're supposedly going to be trading on the OTCQB. They didn't provide a ticker yet for the preferred shares (as far as I can find at least).
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