Category: Company News

I am sure most of you are aware that insurer Enstar Group (ESGR) has announced a merger and will be going private.

My understanding of the deal is that the outstanding preferred shares of ESGR will be exchanged for similar new shares, but will not be listed for trading. The announcement is here.

The company has (2) 7% preferreds that are outstanding and they are tumbling. This is a case where readers should always check the Reader Initiated Alerts page for ‘breaking news’—folks on this site are very much in tune with what is going on–much quicker than I can be.

I held a small position in the 7% ESGRO issue which I exited at $23.83 earlier today. I took a 12 cent capital loss as I paid $23.95 for it, but held for a long time so it was a positive total return. Some quick folks were out at the market open at higher prices.

Shares have been falling all morning and folks will need to decide to hold or go ahead and sell. I suspect over time dividends will be just fine—but one never knows.

It is amazing that some investors (not sure who) buy real junk based purely on a current yield of a preferred stock–do these folks ever even look at the income statement and balance sheet of the company they are investing in?

Today I noted a new prospectus come though for LuxUrban Hotels (LUXH) which has a $25/share preferred stock outstanding (LUXHP)–which is now trading at $14.12/share. Really?

The new prospectus today is for the sale of more common shares–which they have been shoveling out the door as quickly as possible–I assume to try to keep from having to liquidate. Common shares are trading at 15.99 CENTS (it closed at 18.5 cents) falling a couple cents after market close.

LuxUrban has committed to long term leases on hotels (on a triple net basis) and then turns around and operates them–I guess they believe they can do better than the previous operator. The company has amended their certificate of incorporation to allow for issuing up to 200 million common shares and 20 million preferred shares. This is essentially a doubling of authorized shares. When you are selling at 15 cents it takes millions of shares to generate a little cash.

The company has announced they will be paying the monthly preferred dividend on July 31–but one has to wonder how long this will go on–they have only $900,000 cash on hand.

This company is headed for Chapter 11–it is just a question of when they through in the towel. And while the writing is on the wall someone is willing to pay $14/share for the preferreds–who?