market folly

Next up in our notes from Invest For Kids Chicago 2013 is Marc Lasry of Avenue Capital.  He pitched J.C. Penney (JCP) as a long at the event.


Marc Lasry's Presentation at Invest For Kids Chicago 2013

•    Reason all the risk in the system is that LIBOR is that 25 bps
•    Supposed to generate a 40x RFR for get 10% per annum. But isn’t there risk there?
•    Why is that risk?


•    Idea #1 is J.C. Penney Debt
o    Why JC Penney? Convince to go and shop
o    Everyone believes JCP will file for bankruptcy
o    Bonds mispriced based on that assumption
o    JCP operates in 49 states (no Hawaii)
o    Slowing retail environment and they get rid of old CEO and bring in Ron Johnson
o    Ron Johnson took a bunch of risk
o    Coupons and promotions here historical
o    Prior to new strategy $17 billion in sales $1.4 billion of EBITDA yet goes to -$500 million of EBITDA
o    Able to raise $2.2 billion of new debt to get to $3 billion of debt and $2.5 billion on unsecured – but that have $2 billion of cash
o    Interest payments are $250 million so hard to file of bankruptcy
o    JCP survives unless the value differential
o    Make ~25% return per year for 2 years in debt so you are making 80x RFR due to the believe that JCP will file bankruptcy
o    Same stores sales are flat to up
o    So you are creating the company
o    Majority is telling you “you are wrong”
o    “Nobody likes noise and don’t want to deal with it and that creates opportunity”

While Lasry's talking about debt, numerous other prominent hedge funds have been in and out of JCP equity and you can scroll through that link to follow the saga.


•    Idea #2: Connacher Oil & Gas Bonds at 70
 o    Worth par over a year to a year and a year and a half
o    Pure oil sands company in western Alberta
o    Crude is at $90 a barrel and the price of crude was $45 in 2012
o    Keystone pipeline was delayed and so shipping crude was expensive by rail and they have reduced arbitrage from $16 per barrel in operating margin to $32 (should still rise)
•    Buying investment at 43% discount to NAV because the market doesn’t understand what Connacher is doing and create something at a big discount to a proven value (as opposed to under comps) 


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.