Financial Firm B Riley (RILY) is doing an investor presentation today–not sure of the time–could have happened already.
Common shares tumbled 10%ish yesterday and are off another buck today at $21.81.
As everyone knows RILY has a gaggle of baby bonds outstanding as well as a preferred issue which have traded weakly in the last month. Inquiring minds want to know what is going on—except they hold a portfolio of pure junk.
Here is some of the skinny on the presentation.
With all the negativity surrounding RILY, it’s interesting that Moody’s Daily Credit Risk Score rates the company a 5, which is firmly in the medium-risk category. Moody’s rates many of the companies talked about here in the high-risk category.
It’s an enigma.
https://markets.businessinsider.com/stocks/rily-stock
James – I have looked at them with a question–are they all washed out? I won’t buy but if I was 50 instead of 70 I probably would.
Tim–I can’t really answer your question. All I can say is that this particular Moody’s rating of RILY has stayed constant for at least a couple of years.
The rating seems to be at odds with public perception.
With RILYO below 24 again and maturing in May 2024 it’s a tempting buy but I already have a full position. It’s not without risk.
James – yes Moody’s rates RILY average credit risk.
The question is – is that assessment still valid given more recent acquisitons, significant stresses in their portfolios and executive leadership changes.
For my part, my sense is that the short sellers are probably overl stating their case, but I also don’t see how RILY can cover their dividend w/o raising capital. In my view the options remain very expensvise (albeit less so that in December). My strategy has been to sell them and use the proceeds to purchase 50/50 SWVXX and May 2024 notes. I think these RILY notes are money good. Unless there is a complete disaster.
While I think these short sellers may be overstating their case, I will also add that I have personally unerestimated these particular short sellers twice before. If we see an SEC Wells Notice against RILY, these short sellers will be once again proven correct.
There is no rating on B Riley Financial from Moody’s. There is one on Franchise Group but it is far from average having been downgraded in Nov to B3 from B2.
Congrats on successfully playing the game on the name though…. takes a lot of courage imho.
2W thanks, but I was referring to the Moody’s score in the post from James.
The first time I encountered Marc Cohodes was when he shorted Valeant Pharma. I had been long the name since 2005 as part of a strategy that I use to track ValueAct Capital’s 13Ds. ValueAct became “involved” in one of my employers, and I have tracked their 13Ds ever since. In 2014 a key ValueAct partner left the board of Valeant and went to the board of MSFT (MSFT share price was about $30 then…) I cashed in my Valeant chips and moved them over to MSFT. At about this time frame Marc Cohodes became involved in Valeant on the short side. This was also about the time that Ackman became involved with Valeant – ever since his Realty Income short and spectacular failure at JCP I have always avoided Ackman.
The second time Cohodes became involved in one of my postions was at Silvergate Capital. I was building a small position in the stock as he was shorting it, I realized I was wrong and quickly reversed my thinking. Cohodes was also short SI Valley Bank.
Cohodes is a smart guy, and not to be unerestimated. I don’t know if he is overstading the situation at RILY or not, but there is definitly something wrong over there, and the options remain very expensive.
Interesting August, How are you following Marc, Youtube?
Gotcha AW – I didn’t look back into the thread deep enough to see that. So I guess the question should go to James….. Is there a reference link somewhere that you can share that mentions RILY in a Moody’s Daily Credit Risk Score of 5 anywhere? Maybe it’s there on the link you provided but I don’t see it, And it would seem odd to me that they’d rate RILY a “5.” whatever that might mean, when they do not rate B Riley’s debt at all. This must be an area of Moody’s that I’m totally unfamiliar with… It happens…
I am going to spend a lot of time on this today. I have a small short call spread position on and am looking to see what to do with it (if anything).
My first impression of the PPT deck is that they sure look like they are trying distract from some of the more serious issues with their portfolio companies with the “breadth” of the firm.
They have clearly done well with some of their investments. However some of their investments appear to be seriously flawed.
The one area that sticks out to me is the fact that B Riley owns 30% of Babcock and Wilcox and their exec. Kenny Young has been the CEO of BW since 2018. The BW share price traded at $72 on 2/12/2018 high point for that year. It now trades at $1.70. One is free to ask what does a President of a Finance firm know about running an engineering oriented firm. Evidently the answer is nothing. This correlates with Young’s Linkedin profile which shows no visible engineering experience at all. While CEO of BW (a full time job) he maintains his position as President of B Riley Financial (presumably another full time job). Is this seriously the best way to manage such a considerable investment by B Riley?
They also crack me up with the Targus stuff. They make carrying cases for laptops. While this might be a great business it is hard to imagine that this is the best possible way to leverage any kind of technology cycle.
Anyway I am sure the bonds will all be money good. I am focused on the common.
August:
“They also crack me up with the Targus stuff. They make carrying cases for laptops. While this might be a great business it is hard to imagine that this is the best possible way to leverage any kind of technology cycle.”
They already had to take a write-down on this awful acquisition. From the last quarter EPS release:
“While Targus has faced challenges in 2023, we believe the brand will be competitively positioned as the PC market recovers.”
“..in addition to a non-cash goodwill and tradename impairment charge of $35.5 million related to Targus.”
So paying $250M last year for a maker of laptop/tablet cases, backpacks, universal docking stations, and computer accessories isn’t going to work out real well? Who could have known? LOL.
HI Kid,
I have spent a lot of time on RILY. Don’t want to be too negative on the board here, but I just don’t see how the firm’s operations and investment cash flows will support the common stock dividend. They financed last quarter’s dividend by selling stock IMO. There are a host of other problems with name particularly around the book values of their investment portfolio. I also don’t care for how they operate their portfolio companies, or the general composition of their portfolio for that matter. They have the least desirable 13F that I have seen in a long time. This company does have a negative tangible book value, and that is if one trusts their fair value estimates – which I don’t. I think their book value is way worse that stated, but can’t quantify that. That said, they have had a negative TBV on and off for a while, and nobody seems to care for some reason.
Having said that the question is what does one do with it. Right or wrong I found that selling the at the money straddle was the best course of action. These options were very expensive when I sold them. They have come in a bit, but they are still quite expensive.
With something like this I typically prefer to sell the options about 45 days to expiration, but I selected the March 15 expiration in this case. I took in about $13.5 in premium for each straddle (short put and call leg together) which is sitting in a money market earning interest for now, but I am planning to deploy that into the RILYO May 2024 notes.
I picked the timing because it is just before the March Fed meeting and it is also before the maturity of the RILYO May 2024 bonds. I think these bonds will be money good, and have buy orders in under the market. There are 1/31 and a 4/30 coupon payments remaining. RILY has certainly been buying back these particular bonds, and this can be expected to continue. I suspect we will see a dividend cut on the common in 2024 from RILY – management is loath to make this cut because Mr Riley does own 20% of the common.
As long as the option values remain elevated I plan to keep rolling the straddles forward or picking a different short spread such as call spreads or strangles.
For what it’s worth.
Well, this did not go well for RILY.