As noted by 2whiteroses in the Reader Alert comments RILY has dropped 10% today on a short seller report.
I had noted many, many times that RILY held portfolios of real junk–and of course recently we have seen some of their investments go bad (cryto miners).
Of course RILY has many baby bonds and preferreds outstanding which can be seen here.
I invited folks to do a forensic dive into RILY way back in 2019 of course it took years to play out and one could have doubled or tripled there money if they were invested in RILY in the ensuing years–timing is everything. When markets are euphoric no one cares.
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I think its a good bet buying the O and M because of the substantial insider purchases. The current YTM yields are very attractive. If RILY was indeed a sinking ship as the short seller asserts there’s no way the insiders would have just bought the common bigtime. On the contrary, they’d be stripping out as much as they could from the sinking ship via bonuses and stock sales. The insiders just said RILY’s prospects are not dire so a default especially in the O is highly unlikely IMO. I took a small position in both.
A Brokerage House as I recall has many stocks within the Corporation. THIS IS SO SORRY, IF CAN MAKE A GROWN MAN/WOMAN CRY!
For what its worth it looks like the Co CEO’s have confidence in the company. One bought 20,000 shares and the other 136,000 shares yesterday. Looks to me like they paid close to what its trading at now.
Sometimes those could be stock option or RSU/RSA grants as part of exec compensation package.
Check it out for yourself. Riley paid $40.18 on 136,00 shares according to a SEC FORM 4. Looks like a pure buy to me, but I’m not an expert.
I sold mine long ago.
Those Form 4’s are sometimes a bitch to figure out but most of the time you can figure out in the details if the announced purchase/sale comes from open market buys or from options or grants… This one was straight out purchase at market prices..
Hi Folks – New to the site and love the insight.
I have no position in B Riley at all.
The short sellers report from Wolf has some comments concerning Baby Bonds. Not sure if these are general comments or specific to B Riley’s particular issues.
I think these are exaggerated statements personally ,but am very interested in any feedback concerning these points made on page 2 and page 3 of the report:
“RILY began leaning into a hybrid security known as “baby bonds” to raise $1.227 billion of additional
capital in 2021. Baby bonds are Senior Unsecured Preferred Stock, generally with a par value of $25.00. ”
“…that RILY’s Baby Bonds have almost none of the protections
afforded to the company’s other creditors. They’re unsecured, extremely “cov-lite,” (lacking the same
covenant protections that most bondholders have) and essentially sit right on top of the equity at the
bottom of the capital structure.”
Yes, there is some misstatements there.. First this comes from RILYM.. The Notes will be our senior unsecured obligations and will rank equal in right of payment with all of our existing and future senior unsecured and unsubordinated indebtedness. The Notes will be effectively subordinated in right of payment to all of our existing and future secured indebtedness, and the Notes will be structurally subordinated to all existing and future indebtedness (including trade payables) of our subsidiaries……
Now from “Wolf”. First of all he is wrong calling it “preferred stock”. This is debt as it cannot be deferred and is a liability. Its not capital or quasi split like a junior subordinated note can be. And also he neglects to mention Rily has two preferred stock RILYP and RILYL which sits below the notes.
These being unsecured debt is largely meaningless as many company’s keep their “senior secured” shelf clean in case they later need to access it.
….That being said I would treat any stack from Rily as a potential blow up. Being a leveraged financial I doubt there would be crumbs anywhere after a blow up. So my eyes are wide open here. Small risk bucket purchase to either hold or flip. Its either going to pay…or blow up.
Plus who thinks of a baby bond as a “hybrid security” anyway? It’s pure and simply unsecured debt but with a $25 par instead of $1000. I wouldn’t call that “hybrid.” That being said, I put my RILY exposure behind me with no regrets probably about a year ago… Had great success owning the common, and got out of the hybrids, oops! I mean baby bonds, pretty much before they began to slide… Don’t think I ever owned a preferred… Were I as opportunistic as you are, Grid, I would probably have done the same thing you did today.
2WR, Some baby bonds are slotted hybrid securities. NSS and SJIJ are examples. Some rating agencies will assign issues like those a 50/50 debt/equity ratio because they have that deferral feature which mimics a traditional preferred stock. But these certainly dont have that feature.
Thanks Grid – and the only conclusion that I can draw is that these misstatements are intentionally designed to confuse and overstate the “short thesis”.
Kind of silly really as this sort of thing only causes me to automatically disregard what might be good 13F based research.
The report contains this sentence:
“74.48% of this debt is owned by retail investors who are highly unlikely to understand the risk they are taking when investing in these securities.”
It would seem that both Retail investors … and short sellers are equally unlikely to understand these securities.
August, This is the troublesome part as no reasonable amatuer like me could ever assess…And this comes from Rily above… Notes will be structurally subordinated to all existing and future indebtedness (including trade payables) of our subsidiaries……The Rily baby bonds will be subordinate to all their subsidiaries debt. So if the foundation has too much sand underneath it the structure will collapse. I have no clue how much of their “empire” is based on cryptocrap and Babcock.
If I flip or hold and make a buck, I slap myself on the back for my investing acumen. And if it goes to zero, I deserve it and had it coming to me.
Pretty fascinating reaction in the stock, with baby bonds dropping almost as much or more than the common now. Both CEOs made open market purchases of the common the last couple days, so apparently they disagree that the company is going bankrupt. Bryant Riley is not an idiot, pretty sure he is not intentionally throwing his money down the toilet.
Also, the preferreds, RILYL, have barely budged, now trading for more than the all the baby bonds.
Thanks for the input August.
Not familiar with Wolfpack Research, but it doesn’t sound like they fully understand the subject matter they’re reporting on. Short sellers aren’t generally known for their ethics either.
My nasty drawer is pretty bare and the few in it were begging for some company so I toed into the RILYM dungheap at $22.45 with an almost 12% YTM in 2025. My preference was RILYO that matures next year but market wasnt going to let that one drop as much.
I jumped in on Wednesday. If Grid is in, so am I.
RJZ, I noticed RILYO dipped more past couple days so I bought a couple hundred small ball at 23.70 of it to go with my M. As long as it doesnt blow up…. I got maybe 500 share skin in them combined so if the market guillotine comes out on this issue, it will miss my neck and just take a finger or two, ha.
I really wish I had known O would finally spill a bit more as I would rather be all in the shortest duration, but whatever. Im up a big 15 cents it appears on M so I could rotate, but probably just let it be and small ball them both.
RILYO has recovered some. Down now 2.4%
Bad day for LUMN also down over 20% and CTDD went along for the ride down over 6%.
With CTDD at 20.40 dividend is now 8.3%
$17 to 18 is the fun zone. Set a limit and stay within it.
danzeb–I saw Lumens earnings–not stellar, but maybe with a new CEO they will turn things around. Biggest problem is the need for capital–a very capital intensive business if you want to succeed.
I was looking at it this morning and the race to offer hi speed service in areas that may take years to recover the investment by all the telecom’s competing against each other and throw in the cable guys ends up with duplicate hardware in the ground or hanging off the utility poles. lUMN cut it’s common dividend and people thought that adds a cushion to the preferred. But then they take the money and do stock buybacks. Crazy
Tain’t nobody doin’ nuthin’ around here to bring highspeed… And I live 50 miles from Chattanooga and https://epb.com/. “The World’s Fastest just got faster. 25gig internet is here.” Spectrum stops 4 miles from my location and it’s still 4 miles away 2 years or more since getting Fed funding to expand their network to rural. Even the local electric utility with Fed funding has come not a fathom closer to bringing it our way and that’s been for 5 years or more I would guess… Still stuck with 25mbs Hughesnet and some quasi wireless alternatives from Verizon and AT&T that don’t clock much better – same with Starlink’s pie in the sky….. Rant over…….