Share tips thread

[walm]

cobblex said:

Haven't they got to pay for the money they borrowed in 2 years time? ie at 66% of the value of the shares they put up as collateral (ie what they borrowed)

So the share price going down is not to their advantage

Yes - but according to trashbat (quoting others) it is non-recourse which means that if the shares are worth precisely zero then they can walk away.
OR if Terry takes the money and blows it on hookers and coke and can't pay the £7.5m he can walk away.
My suggestion is that EFH wouldn't mind that since they would be paid through margin calls in the interim.

So even if Terry defaults EFH are made whole because they just sell the shares for whatever they are worth at the time PLUS MARGIN which will equal the full amount of the original loan.

So in short - Terry borrows £7.5m and buys some stock with it. In two years he pays back the £7.5m.
What he owned before in shares - he will own again.

(Plus he will have either made or lost money on the EXTRA shares he bought with the loan.)

[walm]

cobblex said:

Cenkos set out more clearer terms

4) EFH cannot sell any stock unless the directors default

That is in direct contradiction of the RNS that I quoted earlier.
What's your source?

[trashbat]

walm said:

I think I disagree.
EFH surely don't want exposure to QPP share price. That isn't their business.
They lend money.

If they sell the shares, then they are effectively SHORT. (i.e. they lose money if the share price goes UP.)

Why?
Well, Terry is contractually obliged to buy back the shares in two years and EFH HAVE TO DELIVER.
But Terry is paying a previously agreed price. EFH however, if they have no shares have to buy them at the current market rate - before Terry buys them back.

So the only way for EFH to have ZERO exposure is to hold the shares.

Yes, if it goes up.

But if the final share price is say, zero, that won't be very hard. And if you as EFH suspect that will be the case, then selling them ASAP is the only course of action - which in turn might accelerate the demise and make it a certainty.

walm said:

That said, I am confused as to why they need the margin payments in place. Unless it is to protect from the non-recourse part. i.e. as the share steadily heads to zero EFH need paying since obviously they don't want Terry failing to pay the £7.5m as the stock no longer exists.

Indeed. Bear in mind also that the £7.5m is not delivered up front; it's released incrementally, and collateral is taken incrementally too. Along with the margin calls, the exposure to risk looks like a staircase.

[trashbat]

Look at it this way.

Let's suppose I hold 100m shares in something at £1 each.

You offer to loan me a maximum of £100m, delivered incrementally as I ask for it, taking those shares as your collateral, also incrementally.

Importantly, it's a non-recourse loan; if the collateral's worth nothing at the end, sucks to be you.

But, we both suspect, the shares aren't going to keep on being worth £100m for very long.

I ask for £10m of the money and you take 20m shares. You get rid of them into the market as quickly as possible. You make £15m. The sale depresses the share price.

I ask for another £10m of the money and you take 40m shares this time. Again, quick, get rid. You make £20m.

And then for the sake of brevity, the company goes bust there.

When the loan comes to an end, you've made £15m and I've turned 60% of my holding into £20m whereas otherwise it would have been worth nothing.

What was the point of this ruse? Well it added a bit of obfuscation and as Rome burned, I didn't have to stand up and say, hey guys, I'm fleeing the fk out of this sinking ship.

[walm]

I disagree on EFH need to sell the shares.
They take the margin call in order to cover a potential shortfall in the event a director defaults.

So as the share drops they just take cash to make up the losses they would face if the director said - NOPE and left them holding now worthless (or worth a lot less) shares.

So they don't need to sell until a default event.

And even if the share hits zero in the meantime they are still covered by the margin calls.

Again - EFH aren't in the business of betting on QPP share price.

[trashbat]

If you're wondering how those cash/collateral figures relate to QPP, we don't know.

We know that Terry transferred 8.5m shares to EFH, which even today are worth £6.3m. We don't know what cash came back to Terry. We do know that he bought about £1.5m of shares, and supposedly as he is one of the exec directors, has only spent the proceeds on buying shares rather than anything else, but we don't know how much cash he has left.

[CRB14]

walm said:

That is in direct contradiction of the RNS that I quoted earlier.
What's your source?

The RNS released on Monday morning for me was the kill switch and completely contradicted the previous weeks RNS and also the Cenkos note.

My interpretation, and the reason I sold up everything very quickly, was that

A) It was a share sale and repurchase agreement and not a share loan as was previously told to us
B) There is an 'understanding!' that EFH won't sell or short the stock. (This made me particularly nervous)
C) If it is true that he has several million to invest why is he buying tiny bits of stock?
D) The loan isn't being used solely to fund share purchases
E) Why isn't the company buying back stock?

If he was serious he'd have ploughed that money straight in to buying shares. As it stands he isn't. I think he will be gone soon anyways.

[Shnozz]

The workings of the loan/sale/buy arrangement are incredibly complex. Another hugely complex arrangement that simply doesn't seem to go on with such regularity in many other businesses.

With the background of:-

1. A founder and CEO with a past that has a huge cloud for a complex shorting arrangement at his previous firm

2. A board of directors largely the "old school" of that former firm.

3. A critical report by Gotham City unearthing, legitimately or otherwise, a number of concerns as to some of the financial arrangements.

4. Tom Winnifrith with his continuing crusade of trying to determine where some of these roads lead

5. A declining share price indicating shareholder concern and/or market sentiment

6. Ongoing criticism for some of the RNS announcements, chest puffing tweets from the CEO and a lot of shouting from rooftops


Do you feel the best course of action is to enter into a complex share sale/loan deal that is hard to deconstruct, with a firm based in the US, with the complexities of the deal hidden from public view until "unearthed" by journalists.

Leading to - statements from QPP brokers that are full of clutter talk in unclear terms (and with unilateral interpretation of the director's own deals!!)

It just seems utter corporate suicide.

The absence of transparency (or at the very least, a readied press release in advance of "uncovering" in clear terms) is flabbergasting to me given all the factors that have combined to undermine the confidence as to the financial layers of this business.

[trashbat]

walm said:

I disagree on EFH need to sell the shares.
They take the margin call in order to cover a potential shortfall in the event a director defaults.

So as the share drops they just take cash to make up the losses they would face if the director said - NOPE and left them holding now worthless (or worth a lot less) shares.

So they don't need to sell until a default event.

And even if the share hits zero in the meantime they are still covered by the margin calls.

Again - EFH aren't in the business of betting on QPP share price.

The two things are independent. The margin calls cover risk. The share sales generate further, optional profit. It is effectively a short, but if the outcome is known to be a zero value, it ceases to be a short and becomes a simple disposal.

If you look into the history of EFH, they have been done several times in the US for selling the collateral without the permission of the cash borrower. I suggest that this time it is by cosy agreement.

[walm]

trashbat said:

Look at it this way.

Let's suppose I hold 100m shares in something at £1 each.

You offer to loan me a maximum of £100m, delivered incrementally as I ask for it, taking those shares as your collateral, also incrementally.

Importantly, it's a non-recourse loan; if the collateral's worth nothing at the end, sucks to be you.

But, we both suspect, the shares aren't going to keep on being worth £100m for very long.

I ask for £10m of the money and you take 20m shares. You get rid of them into the market as quickly as possible. You make £15m. The sale depresses the share price.

I ask for another £10m of the money and you take 40m shares this time. Again, quick, get rid. You make £20m.

And then for the sake of brevity, the company goes bust there.

When the loan comes to an end, you've made £15m and I've turned 60% of my holding into £20m whereas otherwise it would have been worth nothing.

What was the point of this ruse? Well it added a bit of obfuscation and as Rome burned, I didn't have to stand up and say, hey guys, I'm fleeing the fk out of this sinking ship.

But - as a counterargument.
Let's say your business turns out to be OK.
So the shareprice - two years from now - heads to £1.50 (up from the 50p implied by the last sale).

And I pay you the £20m loan back and ask for 60m shares thanks very much...
Sure you have £15m in your pocket, but you have to find £90m to buy the shares!!!

And don't fortget - the only thing I have been doing with the loan is BUYING MORE SHARES.
So for me, I have turned the first £10m into £20m (SP from 75p to £1.50).
And the second £10m into £30m (SP from 50p to £1.50).

And you just lost £75m.

Even if your conspiracy theory is right, it's a massive gamble by EFH on the QPP stock price. Which isn't what they do.

[trashbat]

walm said:

But - as a counterargument.
Let's say your business turns out to be OK.
So the shareprice - two years from now - heads to £1.50 (up from the 50p implied by the last sale).

And I pay you the £20m loan back and ask for 60m shares thanks very much...
Sure you have £15m in your pocket, but you have to find £90m to buy the shares!!!

And don't fortget - the only thing I have been doing with the loan is BUYING MORE SHARES.
So for me, I have turned the first £10m into £20m (SP from 75p to £1.50).
And the second £10m into £30m (SP from 50p to £1.50).

And you just lost £75m.

Even if your conspiracy theory is right, it's a massive gamble by EFH on the QPP stock price. Which isn't what they do.

Sure (although turns out you only get 70% of your shares back)

The problem is with your last bit - I think the evidence shows that it's exactly what they do.

[walm]

trashbat said:

ure (although turns out you only get 70% of your shares back)

The problem is with your last bit - I think the evidence shows that it's exactly what they do.

You gave them 60m and ask for 60m back, no?

Otherwise - you might be right on that one.
I haven't done huge DD on EFH.

Would be very odd for the CEO to get so deep into bed with a known short seller though!

[Oakey]

It's going back up, who's feeling brave?

[trashbat]

walm said:

You gave them 60m and ask for 60m back, no?

My mistake re: the 70%. I can't quite work out what role the 69% in the RNS plays.

walm said:

Otherwise - you might be right on that one.
I haven't done huge DD on EFH.

https://cases.justia.com/delaware/superior-court/1... (PDF warning)

walm said:

Would be very odd for the CEO to get so deep into bed with a known short seller though!

From this very thread in April, taken from the Sunday Times:

marky1 said:

IN THE spring of 2000, the tech bubble was about to burst. Rob Terry, then 31, was determined to make his mark.

And he did.

Boo.com, the fashion website, became an emblem of the dotcom crash when it failed after burning through more than £100m in 18 months. No matter: Terry’s vehicle, a seller of claims management software to insurers which he named The Innovation Group (TiG), was a firm of substance.

It was losing money, but then so many tech companies were in those days.

Terry floated TiG at a valuation of £240m. The stock soared. Over the next 2 years he rolled up competitors here and in America, pulling off the 25 acquisitions at about one a month. TiG’s stock soared, valuing the company at more than £1.3bn and catapulting Terry into The Sunday Times Rich List with a paper fortune calculated at £355m.

The first cracks appeared in February 2002. TiG’s shares plummeted nearly 30% in a week after analysts raised questions about how Terry had presented deals to the market. TiG had, for example, announced a £4m software sale to a German client only to reveal in the footnote of a separate announcement that TiG had lent the client that same amount.

Soon afterwards, TiG unveiled the $21m takeover of a rival. The announcement did not reveal, however, that TiG had signed a separate deal to sell software worth $14m to the rival’s parent. TiG’s astronomical growth was, perhaps, not what it seemed.

Terry sealed his fate a few months later when he and Stephen Scott, a fellow director and now a Quindell board member, sold £4.9m and £1.4m in shares respectively, just two months before a monster profit warning obliterated the stock price. The announcement included a £350m write-down on the companies Terry had spent shareholders’ money buying.

Within a year he had resigned, but Terry did not leave empty-handed — he had pocketed close to £20m through share sales and severance payments.

First yellow post here: http://www.pistonheads.com/gassing/topic.asp?h=0&a...

[CRB14]

Oakey said:

It's going back up, who's feeling brave?

You must be joking. Think a rise back was inevitable. There were rumors of a management buy out floating around which may have brought some day traders in.

[walm]

trashbat said:

My mistake re: the 70%. I can't quite work out what role the 69% in the RNS plays.

It's just the price Terry has to pay when he buys back.
He sold at 67% the value of the shares (sorry "loaned" not sold).
And he is contractually bound to buy back at 69% of the value.

Where the "value" is the average price over the three days before the original transaction.

This means EFH have more collateral than they need in the case of a default.
But that safety margin gets erased as the stock falls - so they start asking for margin.

(Unless they sold the lot when they got them, in which case they are just asking for margin for no reason... just saying!)

[trashbat]

Ah, makes sense. Where did the 67% come from?

[walm]

trashbat said:

Ah, makes sense. Where did the 67% come from?

Same RNS.

"the Purchasing Directors transferred the legal and beneficial interest in a number of shares to EFH in return for the Purchasing Directors receiving a payment from EFH of a sum equal to 67 per cent of the three-day average market value per share less a financing arrangement fee of 3 per cent"

[ODRALLAG]

Was a click away from buying QPP today at 69p lol would have been a nice quick profit

[CRB14]

Would have needed huge balls to buy whilst it was dropping today. It's as good as going down the casino and putting all on black.