A long, long time ago, I started mentioning Cagle’s (CAGAQ) potential for a much higher distribution than the current share price. I pegged final distribution to equity around $4 per share, but the final distribution was very sensitive to the assumptions made.
Well, Cagle’s filed their first plan of liquidation, and the expected recovery comes in materially lower- $3 per share for the equity…. What gives?
Well, two things have happened
- Their results for June (their last month of operations) were absolutely disastrous. If you’ve read the journal, you’ve heard about the highest cost for corn in ages. Well, that “high cost” led Cagle’s to a COGS that was higher than their revenue. So, instead of running at breakeven or a profit before interest and legal expenses…. they reported a big loss, eating in to their margins.
- The equity distribution seems awfully conservative.
2, however, could probably use some explaining.
Look at the balance sheet from their June results (page 3). Remember, they have no more operations, so the only changes to this going forward come from bankruptcy costs and actually liquidating. The balance sheet shows shareholder equity of ~$5.65 per share. Even if you factor in $6m in total costs for bankruptcy (cure costs, accrued interest, legal expenses, etc.), and then assume they collect nothing from their non-cash and JCG note assets, I’d come out with a book value of $16.2m and a final distribution in the $3.50 range.
Are there risks? Of course- legal costs could come in higher, and there are still some potential adjustments to be made to the JCG notes.
But I continue to think they’re justified at these prices.
Disclosure: Long CAGAQ
http://www.kccllc.net/documents/8819200/8819200120731000000000002.pdf
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A commenter on of your previous Cagle’s posts asked whether you had factored in post-petition interest. It did not appear that you did. Have you determined how much that oversight impacted your recovery estimate?
P.S. I don’t recall for sure, did you dump those ATPG bonds? I hope so!
Was June the last month that the operating results eat into distribution or come a bad July and August and so forth continue to eat away at it?
So I have been getting re-caught up with this situation as I’m following in your path and trying to get a better grasp of bankruptcy opportunities, and I’m curious as to why you think the purchase note was so heavily discounted on the asset schedule most recently filed? When I adjust the $18mn note for 8% interest and subtract their number given for inventory disagreement ($490k), I get about a $4.6mn difference from the “collectible” amount (or $1/share). Now, some of this may be the result of the marketing expenses and accounts receivable being disputed, but if it was really a large chunk I would think they would detail the values being negotiated.
Also, any idea why the Macon facility is being given zero value?
Very interesting article, thanks for sharing.
What do you think about A123 Systems that filed for bankruptcy yesterday? Do you think it will have any distribution to equity after paying all it’s liabilities?