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Owen Douglas
Special Situations
973.226.6883 / owen.douglas@gleacher.com
Patrick Fitzgerald
973.364.2538 / patrick.fitzgerald@gleacher.com
John Fleming
973.226.5194 / john.fleming@gleacher.com
Andrew Hain
Special Situations
973.226.8174 / andrew.hain@gleacher.com
Gary Madia
973.226.7062 / gary.madia@gleacher.com
Bill Mastoris
973.226.5812 / bill.mastoris@gleacher.com
Airlines
Christina Ronac
Emerging Markets
212.273.7512 / christina.ronac@gleacher.com
Matt Swope
973.226.3258 / matt.swope@gleacher.com
Brian Taddeo
973.226.3525 / brian.taddeo@gleacher.com
Air Canada American Achievement Ardagh Packaging Armtec Infrastructure Aventine Renewables Boise Inc. Broadview Networks Capmark Catalyst Paper Cengage Learning Cenveo Claires Stores Clear Channel Worldwide Clearwater Paper Consolidated Communications Delta Air Lines Dynegy Eastman Kodak Edgen Murray Energy Future Holdings First Data Fortescue Metals GateHouse Media Geokinetics Headwaters Intelsat Lawson Software /Infor Global LBI Media
Marfrig The McClatchy Company Mercer International Millar Minerva Mohegan Tribal Gaming Authority MTR Gaming NII Holdings Nortel Networks Overseas Shipholding Group Realogy Reynolds Group Satelites Mexicanos Shingle Springs Sorenson Communications Spanish Broadcasting Tembec Inc. Travelport United Airlines Verso Paper Virgolino de Oliveira Visteon Corporation Westmoreland Coal Xerium Technologies Xinergy Yonkers Racing Corp
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Capmark (CPMK)
Andrew Hain (973.226.8174) Pos: Reorganized Equity at $22.50 Capmark emerged from bankruptcy in 2011 and had written down its loan portfolio by ~30%. Current book value of the Companys assets is approximately $2.7 billion versus a market cap of $2.3 billion, or a ~15% discount to book. The combination of write-downs and the discount to book value make the equity look attractive to us. The story is underfollowed and we believe there is upside into the mid to high $20s.
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Cenveo (CVO)
Matt Swope (973.226.3258) Pos: 7.875% Senior Sub Notes due 12/2013 at $95, 11.6% YTM Cenveo is a diversified printing company with operations including printing prescription labels and business forms, manufacturing envelopes and commercial printing scientific, technical and medical journals. Cenveo continues to be acquisitive with a focus on its packaging, envelope and label businesses and away from the commercial printing business. Cenveo recently struggled its way through the bond market with a partially successful deal attempting to refinance all the unsecured debt in its structure. The sloppy execution on this new deal left approximately $150 million of this issue outstanding. Cenveo is levered 5.3x through these notes at the back of the structure. The company is currently in the market with a $65 million term loan with the use of proceeds to chip away at these notes. The company generates significant free cash flow with roughly $230 million in EBITDA, $110 million in interest and $20 million of capital expenditures. We believe the free cash flow in addition to the new bank borrowing give the company significant flexibility to retire these bonds.
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Geokinetics (GOK)
Kieran Byrne (973.226.7358) Pos: Geokinetics 9.75% Secureds at $70.5, 26.5% YTM (current yield 13.8%) Despite near term liquidity risk, we like the risk-reward of the 9.75% Secureds at 73.5 as your downside is mitigated by the Companys asset liquidation value which we believe to be in the 50 cent range on the 9.75% Secureds. In the event of a restructuring, par value (or higher) is likely created via a debt for equity swap coupled with a comprehensive operational restructuring. Additionally, we believe industry fundamentals should support a swap into equity as elevated oil prices and increasing E&P spend in 2012 should prove to be a positive seismic demand driver. An operational restructuring would involve a material reduction in SG&A expense as well as a better managed project bidding and execution process aimed at improving proprietary gross profit margins. Under our high level assumptions, we believe that $80m in annual proprietary EBITDA (excluding late sales) is achievable which would lever the Secureds (at market) at 3.5x. In the event that management can navigate the Companys near term liquidity issues and its $465m backlog proves profitable in 2012, earnings will improve which will result in improved trading levels on the 9.75% Secureds.
Headwaters (HW)
Brian Taddeo (973.226.3525) Pos: HW 2.5% Subordinated Convert Notes due 2014 at $92.75, 7.2% YTW Despite the continued run up, we still believe the bonds are attractive yielding over 7%. The converts are 5 years shorter than the first lien notes and the next major maturity. Management continues to buy back its high coupon convertible debt in the open market to reduce overall debt levels and reduce ongoing interest expense. The remaining few million of 16% notes will also be called/retired in June. In addition, they have started to buy back the 2.5% converts and have reached an agreement with holders of $50 million of the notes to push them out a few years, leaving roughly $60 million to mature in 2014. Given roughly $65 million of annual cash needs (capex/interest), we expect the company to generate free cash over the next several years which they will also likely use to delever the company with the major focus still being the convertible notes. The company also continues to look to sell its non-core coal assets over the coming months which are doing roughly $0 EBITDA, proceeds from which will also likely be used for debt reduction. This is in addition to the $18.5 million the company received earlier this year for its stake in an ethanol JV.
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Intelsat (INTEL)
Matt Swope (973.226.3258) Pos: 11. 5% Intelsat Luxembourg Notes due 2017 at $99.5, 11.6% YTM Intelsat is the worlds largest Fixed Satellite Services operator, with 54 satellites and covering 99% of the earths populated regions. Intelsats business is characterized by highly predictable revenue as evidenced by the companys current backlog at $10.7 billion or more than four times the amount of revenue the company did in 2011. The leverage through the bonds is high at 7.7x but the company is loath to add more debt and expects to see an increase in EBITDA as it starts to reap some benefits from its new satellites. The Media segment continues to improve and the satellite launches in 2012 will boost the companys total transponders by more than 5%. Capital expenditures net of customer prepayments are expected to decline from $625 to $650 million in 2012 to $400 to $450 million in 2013 and 2014. Companies in the FSS industry have historically been valued at 8x to 9x, providing asset coverage to the bonds. The company has filed an F-1 with the FCC to do an IPO and would presumably look to take these bonds out to cut down on interest expense.
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Marfrig (MARFRI)
Christina Ronac (212.273.7512) Pos: 8.375% USD Sr. Unsecured $72.5, 15.6% YTM Pos: 9.5% USD Sr. Unsecured $72.5, 15.6% YTM With a base case scenario of US $900MM-US $1Bn in EBITDA, US $400MM capex, and US $600MM pro forma cash interest expense (after refinancing low short-term rates into higher rates and assuming BNDES PIKs its BRL 2.5Bn convert), Marfrig should be able to operate near a break-even level before taxes. Upside should Marfrig prove us wrong and able to execute successfully as well as upside should BNDES provide additional capital. The local chatter is that Marfrig is asking BNDES to PIK its BRL 2.5Bn convert until maturity, increase the size of the convert, as well as convert the note to equity at maturity. As JBS was able to do this with its BNDES convert, it seems likely BNDES will give Marfrig the same treatment. Although we have low conviction in managements ability to transform Marfrig into a brand business, Marfrig should benefit from CADEs restriction on BRFs Perdigao brand for 3 to 5 years and the Batavo brand for 4 years.
Minerva (MINERV)
Christina Ronac (212.273.7512) Pos: 10.875% USD Sr. Unsecured at $96.75, 11.5% YTM Pos: 12.25% USD Sr. Unsecured at $99, 12.4% YTM The weaker BRL should benefit Minerva as 60% of its revenues are exports. With net leverage of 3.6x, no need to access the capital markets, and FCF guided to be positive in 2012, we feel Minervas bonds should be trading near 9% yield. Minerva has traded down in sympathy with Marfrig, general risk-off mode, as well as news that it will issue a 10-year BRL 420MM note. Per management, this local bond will have no impact on gross debt or net debt. The BRL 420MM note will be a way for Minerva to transfer the funds from the 22 note at the Luxembourg subsidy into Brazil without triggering the 6% tax rate on USD debt. Soon after retapping the 22 note, the government changed the tax structure on prepayment export facilities, which is the instrument Minerva would have used to transfer the funds into Brazil. With Brazils cattle supply to increase, while Australia and the US face cattle declines, more export markets are opening up to Brazil such as Chile and Asia.
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IMPORTANT DISCLOSURE This communication has been prepared by Gleacher & Company Securities, Inc. This communication is provided to you for information purposes only. The views and recommendations in this communication are typically the short-term views of the Sales and/or Trading desk of Gleacher & Company Securities, Inc. This communication has not been produced by the Research Department of either Gleacher & Company Securities, Inc or any of its affiliates, and does not constitute research. Readers should not consider the information contained in this communication to be objective or independent of the interests of Gleacher & Company Securities, Inc Trading and Sales desk. As these are the views of the Trading and/or Sales desks, you should assume that the authors of this communication are active participants in the markets, investments or strategies contained herein. Prices shown in this communication are indicative and Gleacher & Company Securities, Inc is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The information contained in this communication has been obtained from sources that Gleacher & Company Securities, Inc believes are reliable but we do not represent or warrant that it is accurate or complete. The views in this publication are those of Gleacher & Company Securities, Inc and are subject to change, and Gleacher & Company Securities, Inc has no obligation to update its opinions or the information in this publication. Gleacher & Company Securities, Inc and its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation or issuance of this document, may from time to time act as manager, co-manager or underwriter of a public offering or otherwise, in the capacity of principal or agent, deal in, hold or act as market-makers or advisors, brokers or commercial and/or investment bankers in relation to the securities which are the subject of this communication. Neither Gleacher & Company Securities, Inc, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this communication or its contents. The financial instruments discussed in this communication may not be suitable for all investors. Gleacher & Company Securities, Inc recommends that investors independently evaluate each issuer, security or instrument discussed in this communication, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may differ substantially from those reflected. Gleacher & Company Securities, Inc and its affiliates do not provide tax advice and nothing contained herein should be construed to be tax advice. Additional information regarding this communication will be furnished upon request.
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Accretive Solutions Ames Taping Tools System Cygnus Business Media Endurance Biz Media Entercom Radio Gannett Lamar Advertising Leap Wireless Lee Enterprises Media General Mueller Water New York Times Penton Media Postmedia Networks Salem Communications Sirius XM Radio Townsquare Radio Warner Music Group Affinity Gaming (fka Herbst) Ameristar CCM Merger (Motorcity) Eldorado Resorts EPL Intermediate (El Pollo Loco) Hooters of America Inn of the Mountain Gods Isle of Capri Kellwood Mashantucket Tribe (Foxwoods) Peninsula Gaming River Rock Entertainment Station Casinos Tropicana Trump Entertainment Wynn Resorts
American Casino Boyd Gaming Caesars Entertainment (HET) Chukchansi Circus & Eldorado Eastman Kodak First Capital Greektown Indiana Downs Jacobs Entertainment Majestic Star Marina District Finance (Borgata) MGM Resorts International Midwest Gaming Mohegan Tribal MTR Gaming Shingle Springs Snoqualmie Sugarhouse Yonkers Raceway
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June 1, 2012 Analyst/Sector Andrew Hain Special Situations andrew.hain@gleacher.com 973.226.8174 Primary Coverage Aventine Renewables Bon-Ton Stores Bumble Bee Capmark Claire's Stores Inc. Exide Technologies Gymboree HD Supply K-V Pharmaceutical Patriot Coal Petroplus Realogy Sitel Worldwide Visteon YRC Worldwide AbitibiBowater (Resolute) Ainsworth Lumber Appleton Ardagh Packaging Ball Corp. Berry Plastics Boise Inc. Catalyst Paper Clearwater Paper Crown Holdings Fortescue Metals Group Graphic Packaging Libbey Glass Longview Fibre Mercer International Miller Western New Page Reynolds Group Ryerson Inc. Sappi Paper Sealed Air Tembec Thompson Creek Verso Paper Xerium Technologies AIR 2 US Air Canada Air Lease Aircastle, Ltd AMR Corp Continental Airlines (now UAL) Delta Air Lines Global Aviation Holdings International Lease Finance JetBlue Airways Sabre Holdings Travelport United Airlines US Airways Axtel SAB de CV Cemex Copeinca ASA Corp GEO SAB de CV Desarrolladora Homex Digicel Grupo Posadas JBS (JBSSBZ) Lupatech Marfrig Maxtel Telecomunicaciones Minerva NII Holdings Inc OGX (OGXPBZ) OSX (OSXBBZ) Servicios Corporativos Javer Trilogy International Partners Urbi Desarrollos Urbanos Virgolino de Oliveira Secondary Coverage Fannie Mae Lear Medimedia Toys "R" Us U.S. Concrete
Algoma Steel (Essar) ArcelorMittal Domtar Hilex Poly Louisiana-Pacific Rock-Tenn Tekni Plex White Birch
Allegiant Air ARINC Atlas Air AWAS Mesa Air Group Selected Aerospace Southwest Airlines
Aeropuertos Argentina Argentina Warrants Banco Cruzeiro do Sul Brasil Foods Brazil Malls Centrais Electricas do Para SA City of Buenos Aires Corporacion Lindley Edenor Geo Maquinaria IRSA (IRSAAR) Odebrecht Rede Empresas de Energia Eletrica Scribe TGS (TRAGAS) Transener
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June 1, 2012 Analyst/Sector Matt Swope Technology, Media, Telecom matt.swope@gleacher.com 973.226.3258 Primary Coverage Bonten Media Broadview Networks Cengage Learning Cenveo Ceridian Corporation Clear Channel Communications Clear Channel Outdoor Clearwire Dex One First Data Gray Television Intelsat LBI Media Level 3 Local TV Newport TV Nexstar Broadcasting Powerwave Technologies Primus Telecom Sinclair Broadcasting Telesat Holdings Secondary Coverage Allbritton Communications Brocade Cablevision Charter Communications Cincinnati Bell Consolidated Communications Crown Media Datatel Entravision FairPoint Communications Frontier Communications GXS Worldwide Hutchinson Technology Lawson Software Nebraska Book Nokia Open Solutions Satmex Seagate SuperMedia Univision Windstream/PAETEC Yellow Media AES Alpha Natural Arch Coal Bristow Group Cloud Peak Murray Energy Niska Gas Patriot Coal Xinergy
Ameren Genco ATP Oil & Gas Calpine CHC Helicopter Dynegy Edgen Murray Edison Mission Energy XXI GenOn Energy Headwaters Hercules Offshore James River Coal LNG (Sabine Pass) McJunkin Red Man McMoRan Exploration NRG Energy Power Project Debt Stone Energy TXU Westmoreland Coal
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