| 2014 | 2015 | ||||||
| Price: | 0.19 | EPS | $0.00 | $0.00 | |||
| Shares Out. (in M): | 353 | P/E | 0.0x | 0.0x | |||
| Market Cap (in $M): | 69 | P/FCF | 0.0x | 0.0x | |||
| Net Debt (in $M): | 34 | EBIT | 0 | 0 | |||
| TEV ($): | 102 | TEV/EBIT | 0.0x | 0.0x | |||
Workout liquidation play with 20%-30% upside and cash distributions to be paid out to unitholders this year. The units currently trade at $0.1945 for a market cap of $68.7mm. I believe we will see distributions of $0.23 - $0.25 per unit over the next year as the liquidation completes. The units are surprisingly liquid with a few large funds establishing meaningful positions in the name.
Overview
Arctic Glacier Income Fund (OTC: AGUNF, CNQ: AG.UN) is an income trust that is currently liquidating under creditor protection. The company used to have a packaged ice manufacturing and distribution business which was sold to HIG Capital in 2012. The estate is sitting on US$118.1mm cash with proven claims of about $34mm (40% of which are in Canadian dollars aka the Northern Peso). Most claims are settled and the monitor is putting together a plan of arrangement to distribute the proceeds. An overview of the current situation is provided in the 14th report of the monitor: http://www.amcanadadocs.com/arcticglacier/documents/Fourteenth%20Report%20of%20the%20Monitor%20(January%2030%202014).pdf
Background
February 22 2012 – Files for CCAA and Chapter 15
June 8 2012 – Sells operating business to H.I.G. Capital for $434.5mm
September 5 2012 – Establishes claims process
October 31 2012 – Claims bar date
Late March / Early April 2014 – Will establish plan or arrangement in order to effectuate distributions to creditors and unitholders
| Mid | High | Low | Notes | |||
| Assets | ||||||
| Cash | $118.1 | $118.1 | $118.1 | As at Jan 29 2014 | ||
| Tax Receivable | $1.6 | $1.6 | $1.6 | US tax refunds remaining | ||
| Liabilities | ||||||
| Change of Control Payments | -$9.9 | -$9.9 | -$9.9 | ~C$11mm | ||
| Direct Purchasers Settlement | -$10.0 | -$10.0 | -$10.0 | US$10mm | ||
| DOJ Payment | -$7.1 | -$7.1 | -$7.1 | Plea agreement entered between DOJ in which AG agreed to pay US$9mm over 5 years ($2mm has been paid); Interest accrues at 0.34%; | ||
| Indirect Purchaser Settlement (estimate) | -$3.1 | -$1.0 | -$4.2 | max settlement amount of $3.95mm, Class Counsel Charge of $200,000, resulting in a total maximum estate outlay of $4.15 million. | ||
| Professional Fees (estimate) | -$1.5 | -$1.2 | -$3.0 | |||
| Retail Purchasers Payment | -$1.8 | -$1.8 | -$1.8 | 13th Monitors report: Canadian Direct Purchaser Claim has been accepted as filed in the amount of CDN$2 million; | ||
| Interest Payable | -$1.0 | -$0.5 | -$1.7 | Estimate - Not yet established; Assume 3%-5%, accrual of 6-12 months | ||
| Total Liabilities | -$34.5 | -$31.6 | -$37.7 | Total proven claims of $34.495mm as at Jan 29 2014 | ||
| Cash Available to Unitholders | $85.2 | $88.2 | $82.0 | |||
| Shares O/S | 353.32 | 353.32 | 353.32 | |||
| Estimated Liquidation Value (US$) | $0.241 | $0.250 | $0.232 | |||
| AGUNF US Equity | $0.195 | $0.195 | $0.195 | |||
| Estimated Return | 24% | 28% | 19% | |||
AGUNF has $118mm in cash and $1.6mm in tax receivables. I estimate $32mm - $38mm will get distributed to claimants leaving $82mm - $88mm to unitholders, or $0.23 - $0.25 per unit.
Unsettled Claims (p.7 of 14th report of monitor)
Indirect Purchaser Claim - This claim was initially filed for $463.58mm on behalf of a class of US retail purchasers of packaged ice. The applicants have entered into a settlement agreement for a maximum of $4.15mm. Next steps include the issuance of an approval order on a final basis this month and the claims deadline for the class of June 12 2014. Due to the nature of the claim process (the need to submit receipts for the number of packaged ice bags you previously bought), I expect total claims to be less than the maximum $4.15mm.
McNulty Claim – McNulty was a former employee who filed a claim $13.61mm for "blackballing him from the industry". This claim was disallowed on Sept 12 2013. McNulty filed a dispute notice on Sept 19 2013. The monitor submitted the claim to the claims officer for adjudication on Nov 22 2013. This claim is currently unresolved. During the Feb 5 2014 court hearing, it was revealed that discussions are productive and this claim could get settled soon. I expect this claim to ultimately be disallowed or settled for a nominal amount.
Peggy Johnson Claim - This $12.259mm claim is made up of $34,000 for royalties on the trade name "Arctic Glacier", $10.5mm for alleged termination of the royalty agreement, $500k for alleged extinguishment of the license, plus interest. All of these claims except the $34k were disallowed on Apr 12 2013. On May 2 2013 a dispute notice was filed. On Aug 19 2013 it went to the claims officer for adjudication. Unfortunately the hearing is not until fall 2014 and therefore this is the gating factor on the final distribution to unitholders. I expect this claim to ultimately be disallowed or settled for a nominal amount.
Other – There are $718k of disallowed claims where the dispute period had not expired as of Jan 29 2014. $500k of this amount recently expired in early Feb. There is also a $2.194mm claim for California tax in which AGUNF is indemnified and will not absorb any costs.
Timing
During the Feb 5 2014 court hearing, the monitor revealed that it is putting together a plan of arrangement in order to distribute cash in the estate to creditors and unitholders as soon as possible. The monitor estimates that it will have this plan of arrangement ready by late March / early April 2014, with a vote 21-30 days after filing of the plan. I assume an interim distribution of $0.15 could be paid out in the summer with the remainder by year end.
Risks
This is a low-risk workout with upside of 20%-30% as cash disbursements are made over the next year. Assuming an interim distribution in summer and final distribution by year end gives an estimated IRR of >35%.
Bonus