RE: Devex post on ii5 Dec 2018 22:19
Posted by Devex on ii Oct 17 :-
Oct 17
For those who are unaware of the background it is worth recalling how Outrider first got involved with FRR, and of course they were not the original owners of the 2016 notes. Outrider purchased 152 million shares (7.34%) in January 2012 from Plainfield Asset Management. They sold these in late April 2015. Plainfield also held original CLNs, but we don’t know how much. The fund became distressed and needed to crystallise assets – hence we can assume a sale to Outrider at a heavily discounted price.
DDJ Capital also owned both shares and original CLNs in FRR. On the 16th April 2015 Outrider sold a chunk of shares and interestingly the same RNS also said: “funds and/or accounts managed by DDJ Capital Management, LLC (“DDJ”) have disposed of 216,931,906 Ordinary Shares ……and DDJ no longer holds a notifiable interest in the Company’s issued share capital.” It is reasonable to assume that at that time they were also selling on their 2016 notes, almost certainly to Outrider, and again we should assume at well below book value.
So Outrider bought loan notes from both DDJ and Plainfield – obviously at a hefty discount – and decided not to hold equity.
Move on to late 2106 and the new 2020 notes (worth $30 million) were owned by Outrider (the majority), Ionic Capital, Elmar and CSTN. Elmar was linked to a previous director, and CSTN is a fund linked to SN. I cannot recall the splits but I think the Court Papers at the time might have carried this info. But for arguments sake let’s say the Outrider Master Fund had $20 million and Ionic $5 million.
Regarding Ionic they are a fairly large Hedge Fund – the last evidence I can find is funds under management of $5 billion. So in reality the FRR notes are a relative drop in the Ocean.
Outrider is very different though. The last online record of funds under management (late 2016) shows the Master Fund at just $153 million. So if the $20 million is right then about 12% of the total fund. However the $20 million is the estimated number on the FRR balance sheet – plus interest. On the Outrider balance sheet it will be closer to the actual price paid for the notes – my guess is between $5 and $10 million, but still a fairly big % of a small fund.
Difficult to draw conclusions here but Outrider say they “specialise in investing in distressed businesses with undervalued assets, either working with consent of the owner or otherwise.” So this was never a marriage made in heaven. From an Outrider perspective their aim was probably always to find an opportunity to take some form of control, but ZM and SN will have been aware of this from day one. And of course have historically proved to be tenacious in their efforts to do the opposite.
The stakes are therefore high for both businesses, but at worst (for Outrider) they simply retain the notes, and steadily increase the book value of the asset as FRR progressively turn their current ambitions into reality.
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