After once again being forced to take giant write offs and sell assets of the company to stay afloat Bryant Riley feels ‘personally sick’! I wonder how he thinks the common share holders and debt holders feel after being lead down the primrose path with his deals which were pretty well destined to fail.
I hope that investors here are not holding shares/bonds from years ago—there have been so many warnings signs along the way that I hope folks exited their positions with only minor losses (or no losses). At this point in time only highly speculative positions should even be considered as the more assets the company sells the less profit potential the company will have available when/if they get the company ‘righted’.
The company announced the sale of some of their consumer brands last week which garnered $236 million which they say will be used to pay down debt.
Then today the company announced they have an agreement to sell part of their wealth management business to Stifel. Honestly the wealthy clients that B Riley still has on board have to be asking themselves if they want to hang around given the events of the last couple of years.
You have to wonder now if there is any hope for the company as the common shares are down to $4.99 right now and the baby bonds and preferreds are off sharply.
Let’s add Bryant Riley’s “personally sick” comment to his greatest hits collection, which includes this: When Prophecy co-founder John Hughes pleaded guilty last November to conspiracy to commit securities fraud, Brian Kahn was named as an unindicted co-conspirator by prosecutors. Kahn denied all wrongdoing and the inimitable Bryant Riley said “That’s good enough for me,” to shareholders during a November, 2023 earnings call. “We’re going to make a lot of money for our shareholders on Franchise Group.” Now there’s a statement that hasn’t aged well.
Franklin–didn’t work out so well I guess.
that’s for sure, lol
Let’s assume that RILYM gets paid off in full by the time it matures on 2/28/25. So holders are joyous and probably had a great outcome.
Then assume that RILY goes belly up say 6 months after that. Highly likely there will be a clawback attempt by the BK lawyers. The grounds will be “fraudulent conveyance” which is standard in BK cases. They will argue that RILYM holders knew that RILY was going to go BK and therefore are NOT entitled to the payout. No opinion on whether RILY goes BK, but if they do I would give 90% chance of attempted clawback. If that happens, get ready to write a check, ~$25k minimum, to your BK lawyer just to take the case.
We have NO RILY babys/bonds in any account, so have no dog in this hunt. Also no open buy/sell orders in any account.
Bankruptcy clawbacks are highly unlikely after 90 days. So Riley would have to go bankrupt by May, 2025 for that to be a real issue for RILYM.
From a Morris James paper on clawbacks-
“How Far Can a Clawback Reach?
In a corporate bankruptcy case, the time limits for clawback provisions are governed by the U.S. Bankruptcy Code and state law. For preferential transfers, the trustee or debtor-in-possession can claw back payments made to non-insider creditors within 90 days before the bankruptcy filing date, provided the other elements of a preference are met. ”
I think the bankruptcy clawback issue is more of a problem for RILYK which matures in early 2026.
Thanks for the input GS
Ther’s no clawback if the transaction is made “in the ordinary course of business.”
Here’s what (from my often faulty memory) Goldman did prior to the CIT bankruptcy.
Goldman held debt maturing the month prior to the bankruptcy. Goldman loaned CIT enough money so they could complete the payoff of that month’s debt, thereby returning quite a bit more to goldman than the loan.
This certainly impaired funds available to service future debt, but “tough nuggies” as no clawback was had. That’s my recollection and it could be wrong as I always thought the clawback would be applied to that specific case. I, of course, held the following month’s maturity.
Imagine going into bankruptcy court and claiming that maturing debt should NOT have been paid.
Your honor, we’re here today because the defendant insisted on honoring his debt obligations…😉
Citadel said: “Imagine going into bankruptcy court and claiming that maturing debt should NOT have been paid.”
CW, I am sure all of the people that pulled their funds from Madoff pre-bankruptcy thought they were in the clear. IIRC, 100% of them were clawed back, even though they pulled their funds years to decades before he went BK.
Another precedent is the Lyondell bankruptcy. Lyondell was bought out in an all cash deal that closed December 2007. They went BK January 2009, 13 months after the buyout closed. BK trustee filed clawback suits against all holders that received ~ >$50k of COMMON STOCK. Many settled along the way by agreeing to forfeiting some percentage of what they received. The ones that held on until the case was finally dismissed paid something over $100 MILLION in legal fees to defend their position. It took until 2018 to get the case dismissed. In the meantime, the BK lawyers on both sides are being paid.
If RILY does go BK, you can guarantee several law firms will seek class action status to recover whatever they can. Even if they do not recover a single penny, they will be very popular at the bankruptcy lawyer convention. Think of all of the billable hours for other BK lawyers. The Puerto Rico bankruptcy has paid >$1 BILLION to date for lawyers and consultants and is NOT finished. The BK judge has god like powers. You can argue all you want that the correct case law says XYZ, but if they disagree, you are hosed. The Lyondell BK Judge Gerber in NYC was the same that approved the GM BK that shortchanged bondholders in favor of pensioners. It was only after he stepped down, the Lydondell clawback case was dismissed. NINE years after the initial BK filing.
CW – that is exactly what would happen. Happens every day.
Two kinds of clawbacks
– preferential treatment: where debtor chooses to pays one/some debts and those creditors got more than they would have received through BK. Usually limited to 90 day before BK filing (its more complicated than that)
-Fraudulant conveyance: where there was actual fraud or something close to it. Even where there wasn’t fraud (“well, the creditor Should have known”), some BK lawyers will file anyway because the “lookback” period is MUCH longer. They do so to try to force settlements from creditors who got payments. Sometimes it works, but it ALWAYS guarantees that the lawyers get paid more.
The irony of course is that Bryant Riley himself is the largest RILY shareholder and would benefit disproportionately from any action that favors that class.
All moot (imo) since B RILY isn’t going out of business anytime soon. 🤞
CW–yes this has been playing out already for years and years and probably will still be playing out in 5 years.
Hey Tex,
I think you mean a “Preferential transfer” clawback. That is generally limited to 90 days (and doesn’t always work – there are defenses to allow the payment to stand).
Fraudulent conveyance (FC) can go back further (potentially years), but requires a showing of “bad actions” (fraud, or near fraud). In one role I had briefly (decades ago), one of my jobs was to chase guys who bought equipment ($100s of $K), sold it improperly, then tried to avoid paying by filing BK. Pushed a lot of FC paper…. Lots of crooks out there. Not sure you could make FC stick against a class of holders of a publicly traded security (but it would be fascinating to watch).
I suspect that RILYM shareholders would probably be OK if RILY avoided BK for 90 days, and maybe even if RILY went in a little faster.
That said, I have no dog in that fight. I haven’t really done BK-related work in more than 20 years (and FC work for 15 years before that), so I could be completely wrong.
Private,
out of curiosity, wasn’t there a state UCC filing on the equipment, which would have allowed it to be seized from the buyer ( the buyer who purchased from your debtor)?
I’d venture a guess that not too many buyers are even aware of the UCC, yet it governs almost all sales of goods over $500, and a secured lender would likely have made such a filing.
In one of my prior lives I managed a multi-billion loan portfolio for the then largest S&L in Texas. That institution ended up relegated to the dust heap of history thanks to Drexel and it’s own stupidity. The S&L bought $1 bill in MBS without factoring in prepayment speed, an essential component.
Bond holders will already be paid and there will be no clawback potential…
Worth noting also is that RILY is now nearly three months overdue for filing its 10-Q from the last quarter. Odd huh.
RILY did not go Belly up? Had I been an equity investor I would have lost a significant portion of my investment. Very BIG difference do be a bond holder.
Hopefully bond holders did not panic and sell their RILYM bonds at a great discount , now priced at (22.65) as they will get 80% back this month due to Rily selling assets…and most likely the other 20% early spring 2025. Some like me will actually will make a capital gain!
PaydayInvestor–no they did not go belly up YET. We will see if the bond holders ‘get whole’. If you speculate you may make great gains–on the other hand all may be lost.
Show me the bankruptcy documents….? RILY is still an ongoing concern…!
Payday–not sure what you are reading–I certainly didn’t ever say they were bankrupt.
Payday –
“now priced at (22.65) as they will get 80% back this month due to Rily selling assets”
RILY has announced nothing yet regarding possible early 11/30/24 redemption of $121M of $146M RILYM. If they were following the RILYO playbook, it should have been announced 30 days earlier on 11/1/24.
There have been posters on SA that contacted RILY’s investor relations department that have been told that RILY no longer has that 90-day early requirement on RILYM.
But please DYODD.
I believe the early redemption no longer applies since the Nomura loan provisions were modified. I’m holding a fairly large position in RILYM which I bought at various price levels from $16 to $24. Because of the big price dip a few months ago, my cost basis is now below $20.
My shares have been out on loan to short sellers and earning an additional 4.5% monthly, so overall the RILYM adventure has been quite profitable so far.