A few weeks back, I wrote a post rather arrogantly titled “What am I missing w/ ALJJ?”. As so often happens when one gets arrogant, life bitch slapped me back down on Monday when ALJJ announced Optima couldn’t close the deal immediately as they were having trouble raising debt.
Many readers had responded to my post saying I was missing the financing risk. But I think they missed the point of the post- I was saying I didn’t think financing risk was a big issue.
The salient points are still in the post, but I’m just absolutely shocked Optima can’t raise the money here. I just checked Bloomberg- the bonds that they need to raise are trading way above par (at $115 per $100) with a yield to maturity under 8% and yield to call under 7%. I absolutely cannot imagine how an issuing of these bonds wouldn’t fly off the shelves.
I also wonder if there aren’t other creative ways of financing this deal to get it done- maybe the company agrees to a short term note for part of the financing to get the deal done? $ALJJ certainly would have the balance sheet post close to do so. If they went that route, they could still do the tender plus it would give them a bit of interest income (tax free, due to their NOLs) while they looked for their next investment.
Finally, what if the deal falls through? Obviously, the equity would be pressured in the short term…. but management is projecting continued operating profits in their proxy, and in reviewing the business history, there’s absolutely no reason they couldn’t hit those metrics. If they did so and continued to pay down debt while avoiding further dilution, I think the sale price could get viewed on as too cheap in three – four years.
Either way, we’ll see. Maybe I’m fooling myself. I added some shares on Monday at $0.70 and (unfortunately) have so far missed out adding more at $0.63 or so. The position is a very material one for me, so it’s looking like it’s going to be a drag on this year’s returns…. but if the deal goes through (and, again, I still think it will) the volatility will prove well worth it.
Disclosure- long ALJJ
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