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B Riley Investment Comes Home to Roost

Today B Riley Financial (RILY) has posted today an ‘open letter’ to board members and shareholders of a company which they have lent money.

In this case RILY lent money to a crypto miner named Core Scientific (CORZ) who quit paying interest and principal on loans in late October and now has threatened bankruptcy. In typical RILY fashion RILY has offered incremental financing to keep them out of bankruptcy. RILY’s loan was only $42 million and they have offered another $72 million in new money.

I don’t claim to understand Core Scientific (or any crypto miner), but I do know that RILY has made significant loans to marginal company’s in the last couple of years (i.e. Babcock and Wilcox (BW), Arena Group (AREN) and others) and I mentioned this a few years ago on this site–I own no RILY securities, but I do worry about their finances as there is significant incestuous activity at play here.

Please make sure to do your deep due diligence on your B Riley investments (i.e. baby bonds). I know a few authors on SA push the baby bonds and they are likely ok–but just the same understand what you own.

The open letter is here.

15 thoughts on “B Riley Investment Comes Home to Roost”

  1. An update:

    AUSTIN, Texas–(BUSINESS WIRE)– Core Scientific, Inc. (CORZQ.NaE) (“Core Scientific (CORZQ.NaE)” or the “Company”), a leader in high-performance blockchain computing data centers and software solutions, today announced it has pre-paid the outstanding balance on the debtor-in-possession (“DIP”) financing package provided by B. Riley Financial (RILY.NaE) , the Company’s DIP lender. The Company retains access to the full $35 million of available funding under the DIP financing package and maintains a strong liquidity position heading toward emergence, which is targeted for mid to late-January 2024.
    “Our team continues to deliver outstanding performance, which translates into continued market leadership and strong cash flow generation,” said Adam Sullivan, Core Scientific’s Chief Executive Officer. “Paying off our DIP financing package at this point in the emergence process is an exceptional achievement that underscores the strength of the organization and positions us well for our planned [Chapter 11] emergence later this month.”

  2. Thanks Tim on this.

    RILY always felt “edgy,” (i.e. riskier loans/investments more appropriate to a QE environment), reflected in their coupons and early call terms. I also appreciated their maturity schedule.
    I’ll consider taking the loss on my RILYZ and deploy that cash elsewhere -thanks again!

  3. I owned RILYG 3 years ago, sold after holding for 6 months, and have never been tempted since. I don’t recall why I sold (I wasn’t keeping a trading diary at the time), but after reading comments here, I’m glad I did.

  4. The CEO has some skin in the game and just bought more at $43.93. FYI

    Insider Buy: B. Riley Financial
    4:01 PM ET, 12/05/2022 – MT Newswires
    04:01 PM EST, 12/05/2022 (MT Newswires) — Bryant R Riley, 10% Owner, Director, Chairman and Co-CEO, on December 02, 2022, executed a purchase for 51,514 shares in B. Riley Financial (RILY) for $2,263,136. Following the Form 4 filing with the SEC, Riley has control over a total of 6,404,330 shares of the company, with 6,029,929 shares held directly and 374,401 controlled indirectly.

  5. Years ago, I bought and held various BDC’s. Knew nothing about them except that they were lenders to businesses that would have trouble getting a loan from regular lenders like banks.
    One of the first signs of trouble I experienced with BDC’s is the same thing as what Riley is doing here.
    To keep investors in the dark about non performing loans, They would roll over a loan with a new one and of course pay off the old loan to make it look like the borrowing company had paid in full and the new loan gave the borrower enough new money to make several payments on the new loan before defaulting again.
    No way any company in that bad a shape could pay off a larger loan if they couldn’t pay the first loan off.
    Just saying Riley isn’t the only company out there that investors should be wary of.

  6. Tim, they are very aggressive. I dont personally trust them with a softening economy. Their 10 year common stock price low was 16 cents. Not my personal cup to tea, but as they say. YMMV.

    1. Sounds like they are doubling down on that crypto miner. Sounds to me like good money after bad.

      I confess to having flipped some of RILY’s issues when they were first offered, but I didn’t hold them very long – and I haven’t held at all for a couple of years.

      1. Private–I think I did the same years ago, but knowing some of the ‘actors’ involved I haven’t even considered any for some time.

    2. Grid,

      You said “they are very aggressive. I dont personally trust them with a softening economy.”

      Agree and adding:
      “they are very aggressive with OPM and as prolific debt issuers are collecting a pile of fees for each transaction and for continuing AUM striaght into a softening economy”

      Two guesses: 1) If Core Scientific collapses, no one inside Rily management loses a penny. 2) Many holders of RILY issues know the rate and term, though little of the underlying.

      JMO, Risk v return here appears steeply asymmetrical.

    3. Wow, buying RILY at $0.16 would have been a great investment. Did anyone here manage that?
      Or was there a reverse split along the way?

      1. yeah, 1:20 so the .16 posted by grid isn’t accurate. Low on an adjusted chart was 2 bucks 9/30/11

        1. Thanks MCG, as I appreciate the accurateness and correction. But I guess the bottom line was it still got to 16 cents before reverse split, so that is still pitiful! Correction, I just saw 2WR comment and will take his word (I was using CNBC website quote) and take it. Im definitely in Alpha and Tims camp here. But remember Be Here Now, we are just giving our opinions mixed in with emotion and it may just be 100% fine. I personally just tend to get more conservative in times like this. I still have some junk dont get me wrong, Its just not this, ha!

      2. David – RILY did not become a public company until June 2014 when the privately owned B. Riley merged with Great American – https://labusinessjournal.com/finance/b-riley-great-american-group-close-merger/…. There was a 1-20 reverse split of existing private shares in conjunction with going public but RILY never came close to trading that low….. I started following RILY in 2017 and got in at 13.56 by buying FBR, another investment banking company that RILY was buying.. The arb afforded an avenue to buy RILY at a discount to where it was trading so I figured I’d give them a try. Over the years I owned various notes quite heavily along with riding the common, but I began to get out of the notes in Jan to April this year but foolishly held on to the common until last month and this…. Up to this year I was fascinated by what they were doing and their alternative approach to their business when compared to other investment banking houses, but the numbers just began to not make any sense to me. They just seemed to act as if there was an ever flowing spigot of funds available for them to keep spending on risky companies and I just couldn’t understand where it was all coming from. I’ll continue to follow but from the sidelines for now..

    4. Grid–up until a couple years ago they had virtually no equity in the company but they were hammering out debt issues right and left. Then they would make investments or buy companies and take a ‘bargain purchase’ adjustment on the buy – which to me is a bs adjustment–like you I have no trust in them.

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