1Q'24 Position Review / Newsletter Update

Performance Review & Positioning Update (April 2023)

Hi all,

Thanks again for your support as well as being an early adopter. This year has started off on an exciting note and I wanted to give you some updates as well as solicit some feedback. I’m also proving a quarterly update on the companies that have seen the most notable price action (up or down) during the quarter. For reference, you can find my last update from year-end below.

2023: A Year In Review

1Q’24 Update:

To date, I’ve written 40+ “initiation of coverage” type of posts on a wide variety of different topics ranging from small cap post-reorg equities to performing credit. In this post, I will review the top 10 positions that have seen the biggest price movement (by %) since my last update on December 23, 2023. There is obviously some discretion behind this selection. For example, I am going to exclude a random 20% price move in a microcap issuer with no news. In addition, a 15% move in a bond is quite different than a 15% move in a stock.

As such, I’ve compiled a list of the ones that I thought were worthy and interesting enough of an update, especially if there has been some notable company news. This includes names such as AMC, OPI, amongst others. If there are any that are not on this list that you’d like to get my updated views on, please reach out/respond to this e-mail.

Feedback Survey:

In addition, I wanted to solicit some feedback from you all. If you have a minute, I ask you kindly to please complete this quick survey. Doing so will allow me to better understand what are the areas of interest and what areas can be improved.

https://www.junkbondinvestor.com/survey/372167

Hiring:

I am close to hiring an experienced full-time/part-time financial analyst to help expand my coverage universe. To the extent you know anyone that may be looking or are currently looking yourself, please feel free to drop me a line.

What This Means for You:

I expect overtime to dramatically increase the frequency of new content, to expand the universe of covered names, and to provide more frequent position updates (real-time). This should come off as exciting news since anyone that subscribes now will be locked-in into today’s pricing despite what I think will be increasingly more value over time. Importantly, this does NOT mean the quality of content will go down. This does mean however that over time I will be increasing prices at some point to help support the cost of the hire. Anyone subscribing before then will be grandfathered into today’s prices.

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For new subscribers, I am repasting this section from my year-end update to give you a better sense of what to expect.

What This Newsletter is About:

For those new to the newsletter, I write about complex situations that I personally find interesting. Typically, these involve credit/credit-like instruments (e.g., preferred equity, trusts, post-reorg equity, etc.). Consider these write-ups as real-time diligence journals summarizing complex situations that often require a credit investors’ perspective. Importantly, I tend to avoid names/situations that are already well-covered, even within distressed debt, because you can already find a plethora of information on these situations from the likes of sell-side, independent credit research, or even Twitter. Rather, this newsletter aims to systematically review companies that lack even basic coverage, in the hope that this might create mispricing opportunities. By definition, many of these situations are illiquid, not actionable in size, and/or have very wide bid/ask spreads. Almost always, these are low-quality businesses (i.e., #shitcos) which means they are NOT long-term investments but trades that must be monetized.

The Process:

Each week, I review a new situation using public information, typically without prior background in the company or often in the industry as well. My to-do list is derived from several pricing screens I run; occasionally, I investigate highly topical situations that pop up in real time.

As you may have noticed, there is sometimes no recommendation (in other words, a “pass”) because the bonds/stocks (or instruments in question) don’t seem particularly interesting as either longs or shorts. In credit, which generally experiences negative convexity (capped upside, 100% downside), avoiding the “losers” is often just as important as picking the “winners.” If I had a high conviction trade idea every week, you would (and should) question my credibility. In my experience, I have only a few very solid ideas a year, so expecting a well-thought-out and highly actionable idea every week is unrealistic by any standard.

Note that each situation is typically brand new to me, and I spend no more than a week on each; therefore, I am bound to miss some information. Hopefully, I cover most of what’s needed to form an opinion, but I can imagine missing things like industry commentary from competitors. My goal is to provide enough relevant information for anyone looking at the situation to quickly get up to speed with the key areas needed to make a decision, or at the very least, to give them a narrower and more focused path for further due diligence.

Performance Attribution Methodology:

Regarding return attribution methodology, I am using end-of-day prices as of the publishing date or the last trading date (if published over the weekend). These returns are all approximations, and I am using the Bloomberg Total Return function for consistency. Pricing on some of the preferred/illiquid instruments is challenging (given wide bid/ask spreads or no pricing at all), so I’ve had to manually calculate them. I haven’t double-checked these, so there may be some errors, but directionally they should be correct and should not change the magnitude of relative outperformance. Please note that these returns include interest/dividend payments but do not include borrow costs on short positions, which can be high in some instances. I’ve also provided the total returns of the S&P 500/Russell 2000 and IG/HY indices over the corresponding periods for benchmark comparison purposes.

Please note these are simplistic calculations and in no way a recommendation, endorsement, or an official track record. This is NOT financial advice and for purely informational purposes only. I have provided links below to each original post so you can (a) audit the time-stamped posts for yourself and (b) reference the original thought process.

Disclosure: The information provided is for informational purposes only and should not be considered as investment advice. Any investment decisions made based on the information provided are at your own risk. I may have a financial interest in the securities discussed, which could influence my views. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release me from any liability. Seek professional advice tailored to your financial situation and objectives.