Thursday, December 31, 2009

Position Update

Things continue to not look so hot for RHI Entertainment (RHIE).  Last week they entered into a forbearance agreement (details here).  I also saw that Seth Klarman sold his stake in the company, which is a big eye opener for me as he was one of the reasons I bought the stock. 

The big question now will be the value of their library.  It is quite sizeable and has been their reason for staying afloat.  Can it keep them afloat long enough for the market for their products to improve?  With the amount that the stock has declined, it is something I'm willing to wait out and see.  They are still in a good position in their industry.  Their biggest problem is the large amount of debt, and if they can manage it well enought to stay afloat.  I have such a small position that it really isn't affecting me much.  It was a one of those "if it works, I'll get a decent but not great return; if it doesn't I'm not out much" trades. 

We'll see...

Disclosure: Long RHIE


Anonymous said...

Looks Scary
1 )they depend on broadcasters advancing them money to fund current productions (and maybe operations) - not sure you want to deal with or advance funds to a company in this situation if you are a broadcaster

2) management already has had three cycles of companies with a bankruptcy and hundreds of millions of dollars of impairments they have churned the film library through and there may not be much interest left in this group

3) The company is top heavy in expenses vs. the comps & keeping an office in Kansas City ?? look at the cash salary these guys are taking out. Strange movie accounting rules can hide things on the P&L but it can't hide cash flow.
Is Kansas City the home of made for TV movies??

4) The actions by the company seem rushed and in the throes (probably dealing with real cash problems, class action suits from the IPO, delisting process and the banks claim of default )and only the bankers can let them live on. The forbearance agreement said the outside audit hired by the bank excluded items from the borrowing base, that puts them in default by a long way – third party audits usually are held up in these cases.

Another thing on the filing, the filing with the SEC was either rushed or not done by someone with experience. They filed the full agreement with BANK ACCOUNT NUMBERS, account names, bank name and balances?? All they left out was the authorized signers. Some web criminal can probably guess who is a signer on a corporate bank account. Maybe the CFO??
They could easily have received confidential treatment from the SEC and redacted those items.

Very Scary

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