Wednesday, October 29, 2014

Pharmasave Dave's prescient Pinetree post from previous


PS Dave - Pinetree we have a problem. Let's just quote the first half of this, then you can click through to Vancouver Venture for the rest:

Back in the spring of 2011 when gold was trading at $1500 and on it's merry way to $1900 and the talk of $3000 gold was all the rage, Pinetree Capital opted to leverage their seed generator model via a $75 million 8% debenture offering.

Part of the covenant of the offering was that the debt to net asset value ratio will not exceed 33%, which was not a problem at the time of the offering. In May 2011 Pinetree had approximately 136,389,000 shares outstanding with a net asset value of $4.30, the assets were worth $586,472,000 so $75 million was just a mere 13% debt to equity. Well within the covenant.

How things have changed in the summer of 2013. Pinetree is now under pressure as CEO Sheldon Inwentash is now finding out that the bank is his new boss.


Pinetree Capital Ltd., as at June 30, 2013, was not in compliance with one of the debt covenants contained in the convertible debenture indenture dated May 17, 2011, as supplemented by the first supplemental indenture dated Dec. 11, 2012, in each case, between the company and Equity Financial Trust Company, as trustee, which govern Pinetree's 8 per cent convertible unsecured subordinated debentures due May 31, 2016. The debt covenant at issue prohibits the company's debt from exceeding 33 per cent of the total value of its assets, as reflected on its (unaudited) consolidated balance sheet as at the last day of each month. As at June 30, 2013, Pinetree's debt-to-assets ratio was 36 per cent. Pinetree has attempted to manage its debt-to-assets ratio throughout the year, primarily by retiring in excess of $14-million principal amount of debentures under normal course issuer bids (representing approximately 19 per cent of the debentures originally issued), however, the downturn in both commodity prices and the junior resource space generally has eroded the value of the company's investment portfolio.

Pinetree will continue to monitor its debt ratio, which it estimates to currently remain at a similar level to the June figure.

Pinetree has pared the original $75 million debentures back down to $60,864,000 as of June 25 2013 through a series of buybacks. Unfortunately Pinetree's main source of income is based on capital gains and with interest payments of approximately $4.9 million a year, a declining portfolio value and the need to buy back debentures to stay within the covenant guidelines the pressure is on the portfolio.

As of June 30th Pinetree declared a NAV of $0.76/share and with 143,819,000 shares outstanding giving Pinetree's portfolio value of $109,302,440 net of debt. So Pinetree is faced with a double edge sword, as the margin calls come in from Equity Financial and the interest payments rack up Pinetree would have to sell its portfolio into a very illiquid market further depressing their portfolio and putting more pressure on their covenant.

Here is a list I compiled from Pinetree's website, Pinetree's disclosure policy is to disclose the public positions over $1,000,000, this is as of March 31, 2013. I have adjusted for reverse splits, takeovers and spinoffs to the best of my knowledge. The prices where as of August 2nd for valuation with the original cost provided.

This is a pretty large portfolio and anyone of these companies could be under further price pressure given Pinetree's circumstances, although the most liquid companies could be sold first.

FWIW I grabbed some of Sheldon's Coro shares at 3.5 cents. Smokes money, nothing major, I'd still rather own the S&P 500.

On the one hand, it's been beaten down by a seller who is far too large for the market in this stock, and who seems to be selling at gunpoint. That seems to be a good time to buy, not sell.

On the other hand, just because a drive gets forced with a heavy torque doesn't mean it'll be able to bounce back one the torque leaves. Sometimes the torque is enough to break the drive entirely. Does Coro get broken just because it's now at 3.5 cents? We've seen that before with other juniors. Hopefully Coro doesn't need to do a dilution, for example.

Anyway, PS Dave's post has a list of the companies that Sheldon owned as of last year. So go read that if you're shopping for bargoons the way Dave's hero Rick Rule does.


No comments:

Post a Comment