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Posts Tagged ‘Post reorg equity’

The inimitable Distressed Debt Investing has another great analysis of Visteon (see my post archive here). Hunter says:

In my 8 years on the buy side, in distressed and high yield land, I have never seen a more consensus long than Visteon’s when issued equity. Simply put, Visteon’s equity to distressed funds is like Apple to Long/Short funds. Many people I know are long it (including myself) – The only thing I can’t figure out: who is selling?

Here’s Hunter’s analysis:

  1. Visteon owns 70% of Halla: At the USD equivalent market cap of ~$2B, gives us $1.4B of value
  2. Visteon owns 50% of Yanfeng: We will use a 10x multiple, ~$900M of value [note I am seeing analysts put a 12-15x multiple on this business]
  3. Cash at Exit: $785M
  4. Added Cash from Warrents: ~$100M

That gets us to $3.2B before adding any value to the US operations. From this we subtract:

  1. Term Loan: $500m
  2. Cash at Halla ~$150M (as to not double count)

Which nets us to $2.55B of equity value. Still before US operations. 54M shares outstanding translates to $47/share. Given the $56/share price today, there is a $9/delta or $500M. This is where the market is currently valuing Visteon’s US operations.

And that’s where we say: “You’ve got to be kidding me?”

Everyone in the market knows Visteon sandbagged their numbers. Why? Because management is getting a good deal of equity post emergence. But let’s say they are right – the 2011 plan calls for $550M of EBITDA. You have to deduct Halla from this which nets you do approximately $300M.

Therefore the market is valuing the US operations at 1.7x. For a company with a net cash position…Here are some 2011E EV/EBITDA comps for your reference: TRW: 4.1x, LEA: 3.9x, Fed Mo: 5.0x, Dana: 3.9x, Tenneco: 4.9x. Let’s be conservative and use 4.0x and see where the value gets us to: Add $1.2B to our sum of parts above, gets us to a $70/stock. And I will tell you, I am probably one of the more conservative estimates out there.

I want to know who is selling this stock? Is this side as one-sided as I believe it to be (at $55/share)?

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