Stalking Horse Bidders: Not Your Typical Knight In Shining Armour

Finlay recently announced that it has appointed Gordon Brothers Retail Partners LLC as its stalking horse bidder (i.e. the proverbial knight in shining armour).

Apparently, Gordon Brothers' minimum bid would be 64.75% of the aggregate cost value of the merchandise plus an amount that will cover all expenses, such as payroll and advertising costs for the sale events, according to court documents.

I'm here to say what a rip-off this is. From my point of view, this seems to be more a case of prince turned frog rather than knight in shining armour.

Finlay reported close to $443 million worth of inventory on its balance sheet recently. Most of this jewellery would have been manufactured in either 2007 or 2008, when precious metals prices were much lower. At today's precious metals prices, the value of this inventory should in actuality be considered much higher. And considering that there will probably be very little wholesale interest in the Finlay merchandise since US jewellery retailers are still holding onto quite a bit of inventory, I am sure Gordon Brother will be able to collect some decent merchandise at bargain prices.

Moreover, the Finlay auction is being held very close to the holiday season, which is when the typical jewellery retailer will ring in roughly half the year's sales. As bad as retail sales may be, consumer demand for jewellery will still be strong enough. By starting at such a low minimum bid, Finlay is simply unnecessarily undervaluing their merchandise.

There is no doubt in my mind that the actual liquidation of the merchandise at retail level will be at least marginally profitable to Finlay. Selling its assets to a liquidator like Gordon Brothers at below cost at this stage in the process is very bad news for all Finlay bondholders when there is an option for Finlay to directly liquidate its merchandise with its extensive retail distribution presence. This is very unfair to bondholders. The only winner would be the buyer.

There is no other company in a better position to manage the liquidation sales of Finlay merchandise other than Finlay. Why should a stalking horse bidder interfere when it could very well erode bondholder recovery value?

If Finlay wants to sell at cost, why not do it at retail level? Why do it at 64.75% of cost at wholesale level? Could Gordon Brothers just be acting as an agent for another party in this sale? Am I missing something critical?

Some more interesting info to consider: sale-backs in bankruptcies...

To other Finlay bondholders... remember it's possible to object to the stalking horse bidder by writing into the bankruptcy court, the indenture trustee, and committee of unsecured creditors.

ABK: Ouch! One of My Better Trade Ideas Turned Out To Be A Colossal Failure...

ABK was almost +8% today. Is this market even sane anymore? I know I shouldn't be complaining as I've been a major beneficiary of the market rally that's turning out to be a never-ending story thanks to BAC, NYX, and even the beloved C. But when even first-rate junk like ABK and AIG are being bought up (this diva is a proud shareholder of both no less), you really need to start wondering. Is my analysis really so bimbo? Does weighed down with debt and very little cash flow not mean anything anymore? Sadly, I can't even label it a dead cat bounce if I want to maintain any level of dignity.

Then, GBP/JPY does the unexpected and drops 200 points for no apparent reason. Or did I miss the reason? Not that I was in a trade, but still...

Yes, I'm really hurting from the recent Finlay and ABK bond defaults and hence the extra sarcasm.

I've done the unthinkable and raised my limit sell on both ABK and AIG. I know it's self-contradictory, but I've never been above that. If there's a trend party happening, why miss out, right? Don't forget to pull out all the stops...

Finlay: Buying the Cow & Barely Getting A Gallon of Milk

It has finally happened and I missed the announcement whilst I was on holiday... Finlay Enterprises has gone Chapter 11.

This is a case where I bought the cow and barely got a gallon of milk. I initially paid almost $0.48 on the dollar for these Finlay bonds and was only able to collect about a year of interest payments. Taking into consideration the interest payments I received, I effectively paid about $0.39 on the dollar.

I'm glad they expedited the bandaid ripping process though - although they clearly should have done it even sooner.

I now have three corporate bond positions that are still above water - Ambac, Neiman Marcus, and US Steel.

Sigh...

Finlay Bankruptcy Tantrums

So it seems Finlay Enterprises has had a history of throwing bankruptcy tantrums around every once in a while.

They started cautioning us back in late 2008. Then, in early 2009, they issued another bankruptcy ultimatum to their suppliers.

I know I'm in the weird habit of contradicting myself a lot, but now I'm really ready to say please rip the bandaid off already. The karma is clearly on them, isn't it?

So, if you're a Finlay bondholder, please take action by demanding immediate payment of your bonds in writing to Finlay.

Any Finlay Enterprises Bondholders Out There?

Hey guys... if anyone is a fellow bondholder of Finlay Enterprises, please contact me by posting a comment below.

If we can get 25% of us together to demand immediate payment of our Senior Notes, we can accelerate the payment process and maximise our payout. (Should I be caring about any potential bad karma at this point? Finlay has indicated they have no intention to make the interest payment. If Finlay continues to operate, they will just be eroding their asset base away, leaving Senior Bondholders with a much lower recovery rate.)

Financially, it is in everyone's best interests to accelerate the process - especially for Senior Noteholders.

So, I say rip the Finlay bandaid right off.