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$BXG

Closed BXG Trade +2%

I sold out BXG at $9.98 from $9.78 for a small 2% gain. The arbitrage has occurred fully – pricing in approximately zero risk of the deal falling through.

The deal is set to close in April and not a peep out of the SEC or any promising noise from the lawsuit. It appears that one Mister Alan Levan has emerged triumphant in his quest to bankrupt his BBX shareholders by making huge all cash offers for corporations he probably isn’t sufficiently talented to manage.

Monsier Levan makes off with BXG’s MBS captive fund and all its glory. BBX, his equity flagship, continues taking multimillion dollar beatings. Levan’s reputation will be flacked by the SEC until they finally drop all charges (spineless cowards). And everybody eats mud, with the one exception of Al’s personal paycheck (which seems to be the only surviving party here).

Well done, Al…

I pray to whatever darkforces have been unearthed with the unsealing of Ploutonion to murder this deal. Should they answer my call, I will be waiting with cash to buy the knee jerk selloff, heavily. This is such a steal for this company, it’s almost unfair. Especially with the default rate on their property mortgages plummeting to below 6% like they have. And this firesale will barely fill in the whole Levan has left in BBX. The guy is using up all the fresh water to put out the fire he started.

It is absolutely repugnant.

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BXG Thoughts On The Approved Buyout

BXG’s shareholders approved the $10 buyout on Thursday, which means my only hope of retaining the company comes way of SEC intervention or a successful injunction from the lawsuit taking place. Seeing how 80%+ of the shares outstanding approved the merger, the only hope I see here is that some of the shareholders manage to plead to the SEC that a minority of people have arranged a sweetheart deal for themselves at the expense of the rest of the shareholders outstanding.

Unfortunately, I purchased my own position too late in the game to vote against the deal and I’m left thinking that getting myself wound up in the alternative process (not accepting the $10 buyout and instead accepting “fair value” at the time of the sale) is a losing strategy. Who determines this “fair value”? My thought is fair value for the company and its cashflow is $15. I’m sure the company skeleton will just be rushing to pay me that…

As it stands, I am prepared to just take my 2% gains from the $9.78 level and call it a day. I may sell out the position for cash, if the stock keeps closing the $10 gap before the deal finalizes.

In closing, BXG’s shareholders are capital idiots, who apparently enjoy being robbed in broad daylight by their own board of directors.

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Trash Rockets And Churn Hurting My Morale

I am becoming increasingly cautious as this rally is now sustained on the backs of defunct maritime shippers, the airline industry, and pharmaceuticals. Most of this trash would never be permitted to find its way into my holdings.

As summer sets in, the theme will settle on a single discord: disappointment.

The other day, I had a family gathering about 100 miles away. Along the trip, I counted almost 300 acres of land for sale at “NEW LOWER PRICES”. This is what I saw along my way; I didn’t go out looking.

There is a shadow inventory overhanging this market, and the chord that is holding it up is made of the ability of an aging Baby Boomer generation to tolerate pain and discomfort – two things which that group of whining malcontents has never been particularly prone to enduring.

And Europe continues to circle the drain in a slow bleed. You can stop looking for the inflection point, where suddenly everything starts to become increasingly easier and growth picks up. Thanks to binging on positive carry trades for two decades the system has been made recalcitrant and calcified. The arteries are hardened and strain for blood flow.

Thanks to my maneuvers in the Fall, I’m up 21% since November. Yet, more than half of this is contained in just two positions forcing higher by large margins – CCJ and BAS. It could all vanish in a hurry.

This is why I pushed to raise 30% cash recently, although my exposure to CCJ and BAS remains extreme. I have faith in these two positions; they will continue to benefit and outperform remarkably over the next few years. But the swings will be gut churning and disruptive.

Factoring in EUO, my net artificial cash position is closer to 40%. If we crater, EUO is going to spike (more than it has been). I’m also treating BXG like a cash position, as there is an all cash offer (even though I’m hoping/expecting the deal to fall through). That puts me at ~45% cash.

I’m almost ready for the fireworks to get started.

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BXG Arbitrage/Investment Thesis

Part 1

Part 2

I’m consolidating this on one page for you to look over this weekend.

I’d love to tell you how I’ll never hurt you again like this – breaking up the play date and all because of work – but that would by a lie…

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Bluegreen (BXG) Purchase Explanation Part 2

Right around 2007 began a rough time for Bluegreen. The company was thrown into a drag from the housing crisis. Fascinatingly, if there was one industry that could possibly have been in a worse position in 2008 than constructing, selling, or financing housing, it was probably constructing & selling luxury condominiums, then slicing them up into complex financial instruments and selling those pieces to middle class citizens without bothering to check credit or salary data…THEN packaging those obligations into complex financial securitizations and selling THOSE off to wallstreet.

Say hello to the Timeshare industry, folks…

But right around 2007, a guy named John Maloney took the helm of Bluegreen as CEO and President. I’ve talked to some of Bluegreen’s employees, and they seem to have nothing but praise for the guy. Like Schlumberger’s Gould or Ford’s Mulally, there doesn’t seem to be a whole lot of doubt about who’s in charge, or that he’s done a terrific job.

Under Maloney, the company increased focus on not just selling these timeshares, but selling them to the right kinds of people – namely, people that could actually afford them. He also put emphasis on being honest about the pros and cons of the product, and simplifying the portfolio of off-balance sheet finances (which are still present but decreasing quickly).

By these moves, the company has seen an incredibly low default rate on these mortgages. And it’s a cash cow – the company earned $1.00 a share in 2012 on its own. It earned $0.75 in 2011, before restructuring the business. For the last two to three years, BXG has been using a cash generating machine to really restructure, cutting out business lines that were holding the main operation back.

Today, barely 5% of mortgages are distressed, and employees tell me that 40% of all prospective customers they invite to their presentations are making a purchase.

As of September 2012 the company has assets of just over a billion dollars, and because of a large credit line that was extended to them they’ve done a good job of rebalancing the debt terms and lowering interest rates. Actually, I think Levan (the board member trying to buy the company) was the one who extended the credit. With that money the company restructured over $250 million of liabilities (almost one third of their debt).

By all of this, the company is worth about $10 a share clean a clear. I impaired their books by 10-20% just in case something is wrong (lots of off-balance sheet fidgeting) and I’m still getting about $7-8. This company has no premium baked into the pie.

And with earnings of $0.75-1.00, the company has a price to earnings of 10-13X. Really not very expensive, especially considering that revenues last year jumped by ~15%. Or that all the heavy lifting needed to get this company into a shareholder money press seems to have already been done.

Now, the company is complicated. They like to pull the housing bust especial – their mortgages are packaged into CMBS products then securitized and sold off to investors; sound familiar?

So I checked the state of affairs of their SPE’s. It looks like they’re baking in allowances on their loans of 10-20%, depending on where you’re digging. And what’s the actual rate of defaults their packaged securities have been experiencing?

For loans that were originated after Maloney took charge, the loans have been defaulting at 6.5%…

The guy did solid work. Delinquency rates are even lower. And the company has a good focus on keeping this financial garbage under tight control. It’s paying off.

So here’s a company that is really fairly priced, is growing quickly, and just doesn’t have much in the way of a premium baked into the share prices (even after the run up from the buyout announcement). Also, the more shady sides of the business seem pretty clean, after I pry them open, if not also improving.

It’s a company I would own for a good while, provided they keep up the performance. The American public is shifting away from the McMansion frame of mind and starting to ask themselves “what am I doing?” Everywhere, an emphasis on living simply but to the fullest and happiest is taking over. That means less square footage, more vacations and marble and fine dining, provided within one’s salary and with financial security. That’s what people want now. So it’s a solid buy.

Just one problem – the chairman Levan is taking the company private, right?

Well, maybe. You see, Levan is also being investigated by the SEC for shady securities dealings around the time of the housing crisis. His entire reputation – including his ability to chair a company – is at stake. And the deal has already failed once.

I want to see this deal fail. I want the company to stay public. I would warn you that if it does, the stock may initially fall back to the $5 range it was trading at before the buyout offer. But, I think this whole affair has put attention to the company, and that it was mispriced at that level.

If it falls like that, I would take my lumps and double down.

If Levan perseveres and manages to take BXG private, I’ll collect 2% and go on my way.

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Bluegreen (BXG) Purchase Explanation Part 1

Alright, I’ve reached the conclusion that I won’t have time to sit down and just carve out the entire culmination of my thoughts on BXG and what drove me to buy the name. I don’t have the uninterrupted gap of time to make that happen – and it needs to get done.

So instead we’re taking the modular construction approach here; I’m carving this thing up into pieces and I’ll let you assemble it all when I’m done.

The introduction to the name is as follows: Bluegreen is a timeshare corporation. They weren’t always timeshare, they used to be just a regular real estate company of some kind, if I’m remembering, but then in the 90’s they got into timeshare in a big way. They sort of pioneered the modern timeshare concept, taking the real estate deed/title holder model but building an exchange based travel agency on top of it, so you could go to other owner’s properties at different times of the year – before, you were restricted to the destination you purchased at the time you purchased for.

Alright, so Bluegreen got absolutely rocked in 2008/2009. But they had some management changes and the operation was cleaned up spectacularly. I’ll get into that in more intricate detail later.

Now, the company presently has limited upside of $10 a share…exactly. That’s because the chairman of BXG, an, er…interesting figure by the name of Alan Levan with possible Jeffrey Fastow-type tendencies has accepted an all cash offer to take the company private from a financial group by the name of BankAtlantic Bankcorp (BFCF), which is also chaired by, um…Alan Levan. BFCF presently owns 51% of Bluegreen stock.

The offer was originally for 8 shares of BFCF for every 1 share of BXG, but that was headed for a complete shutdown so Levan changed the offer for what is now a pure cash play.

Now, in my next piece I’ll get more detailed on the possible developments I see with the offer and the company in a minute, but I’ll leave you with this to start: at the current $10 offer, with the stock trading for ~$9.80, there’s a simple arbitrage here that nets about 2%.

In my next post, I’ll argue that that’s probably the minimal outcome and explain what I’d rather see happen.

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