Regent Communications Case Summary

As noted in my 2010 Q1 portfolio update, I purchased common shares of RGCIQ.

Regent Communications Inc is currently under Chapter 11 bankruptcy and is working to reorganize the company under a prepackaged plan.

RGCIQ is an interesting situation because under the proposed plan, common shareholders will be “gifted” 12.8c for every common share they hold.

The market offered multiple days of mispriced action when RGCIQ was being sold for 10c which would have been a guaranteed return of 28%. Not bad odds at all.

I was going to write up a whole summary of the situation, the players and the odds, but just the other day, a case summary of RGCIQ popped up. The information contained within is very well documented and the author is obviously well experienced in the world of investing in distressed companies.

Analyzing bankrupt companies will be new to many of you, myself included, but don’t be turned off. Take your time to read over it. It can only help you get better and increase your circle of competence.

For distressed opportunities, my opinion is that you perform less number crunching than you would normally do when finding a company to go long on. However, the difference is that you have to simulate multiple scenarios and play your hand to the best odds.

Much like merger arbitrage, you have to keep up with the situation and how the bankruptcy is progressing.

From what I can see, there is a considerable amount of work involved in reading the lengthy documents, which can easily exceed 100 pages, keeping up with news and analyzing the situation.

Cases where equity holders receive something is rare, but it does exist and the upside is enormous. You can expect returns over 100% easily if things work out well. On the other hand, the risk is that you could lose it all as well.

A home run example is Visteon Corporation (VSTNQ). With management incentivized and pieces of the puzzle falling into place, common shareholders were able to capture over 2000% gains within one month! (Although it does looks like irrational exuberance is setting in)

No doubt a rare case, but a fine example of what could happen.

With that said, enjoy the document below. If you are reading from email, follow the link to the document.

Edit: Link to the document was deleted.


I hold RGCIQ at the time of writing

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17 responses to “Regent Communications Case Summary”

  1. Emiliano says:

    this is a very interesting material Jae, thanks !

  2. pete wong says:

    Hi Jae Jun,

    Question how did you come across this stock? Do you have a screener that automatically reads news? It’s definitely an interesting situation.

  3. Erich Riesenberg says:

    Were you actually able to buy at 10 cents? I recall a few days at 10.5…

  4. Jae Jun says:

    No worries Emiliano.

    @ Pete Wong,
    I knew about RGCIQ because I’ve been following the radio industry since August 2009. Kept Regent as well other companies on my watchlist and decided to revisit it.

    @ Erich Riesenberg,
    No I didn’t manage to get my order filled in at 10c. Didn’t get it at 10.5c either. So missed that opportunity.

  5. Ranajit says:

    Jae, Thanks for the writeup. I think the argument for higher valuation of this case is different from the TLC Vision case which the same judge rejected. The TLC vision case valuation was IMHO indeed speculative without much substance. Although we will have to wait and see what happens on April 9th.

    Btw, I am curious, what broker do you use to trade penny stocks. My broker TDKing charges a fortune for such stocks. Scottrade is slightly better but still has a 1/2% on principal in addition to the $7 for such trades.

    Have you tried Zecco? I didn’t see a different fee structure for penny stocks so was wondering if you have any experience with them.

  6. Jae Jun says:

    @ Ranajit,

    True it could be different to the TLC case but more research is needed on the judge. Knowing about his history and decisions made with other cases should help the matter. I recall that the judge was formerly a lawyer or bankruptcy lawyer, not sure which. If this is the case, then it could make things harder for Resilient to continue.

    (I sold all my shares this morning for a weeny tiny profit btw. If prices fall back below 12c then I’ll start buying again, but I just want to be safe for now as I learn continue learning about all this.)

    I use fidelity for all the trading you see on this blog. $7.95 flat fee. I can buy 10,000 shares for only $7.95. Compare this to the discount brokers that charge you about $100 in commission for penny stocks.

    I have a tradeking account that I really do not like. The commissions are ridiculous. The brokerage houses may look more expensive, but in fact, they will save you money.

  7. Tom says:

    Theres a good writeup today on GuruFocus.com on the ongoing activist battle


  8. Peter Wong says:

    I put in a stink bid for 0.10 I doubt it will be filled but I’m keeping an eye out on Friday. I don’t think things are in favour of resilient. THe upside risk is huge but at this point the amount of downside makes me very hesitant to buy.

    I may end up kicking myself on friday who knows

  9. Tom – thanks, that was actually my article 🙂

    Peter – The part that made me actually buy a position after I wrote my article was when I read about American Eagle, pointed out to me by Erich (I’ll leave his last name off of here unless he wants to say something). Basically, they’re claiming that AE tried to communicate with them, but even though Oppenheimer claims to have done a “thorough marketing process”, they did not respond to AE. If this is true, I think we’ve got a material fact that changes the situation.

    I think that at the very least, a delay should be granted for Resilient to have time and permission to come up with a plan. I believe the AE thing might be enough to delay this process.
    .-= Ankit Gupta´s last blog ..Regent Communications Faces Uncertain Valuations for Bankruptcy =-.

  10. phishticker says:

    you guys should look at citadel…..i got in about 2 weeks ago and am up 500%. similar situation with a catalyst of an NFL team pushing things along quicky and a contract with directv speeding things up.

    the last several days have seen big firms coming in. CTDBQ

    Jae…..you made me look into this company. i am bummed you are not enjoying this ride with me.

  11. Jae Jun says:

    I think I’m most bummed than anyone…

    Volume is still huge. Institutions just backing up the truck, but I’m too afraid of the huge spike it has shown so far.

  12. Tom says:

    Why are you bummed? you just rebought back into the position albeit at a higher price

    I can’t seem to get in this one with my brokerage as they disallow trading on the pinks.

  13. Jae Jun says:

    @ Tom,

    phishticker is referring to CTDBQ which is up 600% now.

  14. Ameet says:

    I enjoyed the write-up of the Regents situation, and look forward to learning more as it proceeds. I have to admit, I’m not comfortable with buying it now because Resilient’s valuation relies on EBITDA multiples of 10 and 11, which seem quite high to me.

    That those multiples are derived by looking at comparable companies makes this a relative valuation that assumes the market is correct about those 3 companies in Regents’ peer group that are excluded from Oppenheimer’s valuation. Oppenheimer’s valuation seems the more conservative for me, whereas Resilient’s seems more aggressive.

    Nevertheless, I look forward to seeing how this plays out.

  15. FYI – The court has confirmed Regent Communications’ plan of reorganization and denied Resilient’s equity committee motion. You can find more details in a new post on our blog: http://www.netdocketsblog.com/2010/04/regent-communications-plan-of.html

  16. Jae Jun says:

    Thanks for this info Randall. I’ve just become a regular at netdockets and find the articles very useful. I was also considering subscribing but the pricing model is quite difficult for me to handle.

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