RAIT Financial – Ready To Crash and Burn?

mREIT RAIT Financial (OTC:RASF) appears to be heading for a pivotal moment. The junky company already had suspended dividends on the 3 preferred issues outstanding and each of them trades under $1/share.

The company has some baby bonds that mature on 8/30/2019. The issue that we refer to is the 7.12% senior notes (OTC:RFTA). The company has not filed their 10-Q for the period ending 3/31/2019 as of yet–so new financials are know since 2018. Additionally they have baby bonds maturing in 2024.

If one looks at the most recent balance sheet (from 12/31/2018) it would show that assets cover their debt–BUT that is probably meaningless at this time since they need to liquidate some assets or con a lender into “refinancing” the debt. The debt coming due is unsecured debt.

Originally the company sold $70 million dollars worth of the offering with another $10 million or so available for over allotments.

With no new financials or news to speak of since 2018 holding any of the companies baby bonds is pure gambling.

With the bonds due next month it is obvious that there are plenty of folks betting on a redemption as the RFTA baby bonds are now trading at $21.50–you can see them here.

What is going to happen?

40 thoughts on “RAIT Financial – Ready To Crash and Burn?”

  1. Talk about having skin in the game… As reported in April, the CEO owns a whopping 766 shares now worth ~$345.00.

    Now that’s committment.

    I was thinking about speculating on a few RFTA until I read this from the 8-K:

    RAIT’s securities currently trade on the OTCQB trading platform. The OTC Markets Group (the “OTC Market”) has advised RAIT that RAIT is not in compliance with Section 2.2 of the “OTCQB Standards”(the “Standards”) for failing to file the Form 10-Q by May 15, 2019. Under Section 2.2 of the Standards, RAIT has until July 1, 2019 to file the Form 10-Q to maintain the eligibility of its securities to trade on the OTCQB market. The OTC Market has advised RAIT that if RAIT has not filed the Form 10-Q by July 1, 2019, RAIT’s securities will cease trading on the OTCQB and will begin trading on the OTC Pink market. If that were to occur, while the trading symbols for such securities are not expected to change, RAIT expects that trading in RAIT’s securities would be adversely affected.

    1. A4I, if that scared you off maybe you would be interested in some FTR senior bonds maturing April 2020? That’s just a scant 9 months off and they pay 40%. Lots of “very compelling” and “most attractive” deals out there, lol.

      1. Hey P,
        40%? Not enough yield for me, buddy, but I’ll be happy to trade them if you set me up on your margin account 😉

        I won’t WAIT for RAIT to be profitable and investible…

    1. D, google Caldwell Chicken Diner Road and you will be enlightened. I was already up to speed on it when Retired mentioned it in one of his posts and I still cracked up. I know Caldwell, good people. How that road originally got it’s name is a tribute to their resourcefulness.

  2. My two cents on RFTA: I had held it in the past, bailed when they suspended the other preferreds, got back in about a year ago and just closed my (small) position last night. Liked the idea of making +15% on a couple thousand bucks in 12 months, but decided in the end to take it off the table . . . just in case. I construe this as a positive influence of following the news flow and informed discussions here on Tim’s website. I have proper respect for The Owl, reading him has also contributed to my investor education, but in this instance I am comfortable in recognizing that I have developed, finally, a somewhat more conservative bent. Will be curious to see how it works out end of August, glad I’m out of it without major damage. D

  3. The Owl, a contributor at Seeking Alpha has a very good analysis. RAIT will redeem the 2019 notes to get over this big hurdle in restructuring the organization. They have been generating fcf. There was a Texas property sale this past December which they initially bought out of bankruptcy, so there will be significant net proceeds. They will have,likely, 25-40 mil coh. There is 55 mil restricted cash which may be renegotiated. There was a recent out of court settlement with RAIT as the plaintiff and, likely, a cash payout. Securitizations and loans may be sold under a repurchase agreement to raise cash. The wild card is Charles Frischer who owns 15% of the common, all classes of preferred, and the 2019 notes. If it gets close he will take a deferred payment to get the company over the hump. Frischer appears to be a shrewd investor who has dipped his toe in troubled waters in the past and isn’t about to let this company go under. New management appears to be committed to a successful,ethical reorganization of the company, none of whom are drawing a big salary. I own the 2019 notes and if I didn’t, I would buy them at the current price of $21.50.

    1. “O”, neither of us have any clue exactly what I’ll happen with the junk RAIT bonds 8/30/19; please do not take Owl’s recommendation as anything but a self serving testimonial. I do know that The Owl has been wrong in just about every article and public position he has taken. IF you followed him into his dreadful and heinous recommendations: CBL, Macy’s, JC Penny’s, Frontier Communications, Wheeler Real Estate, RAIT Financial “Trust”, Navios, Navigator Holdings, Condor Hospitality and many other questionable “investments” one would surely be at or close to bankruptcy…
      Please do your OWN deep due diligence before investing and NEVER blindly follow anyone getting paid for you to click on their article. These “professional” writers do not know your tolerance for loss, volatility or risk. They seem to never fully disclose their “real” track record (shockingly) exactly how many shares, what price they precisely bought those shares at (if at all) and each buy, sell and hold recommendations.
      AUT VIAM INVENIAM AUT FACIAM, Nomad

      1. Nomad, he is a disaster for someone looking to invest in these dung piles. But he is a very good number cruncher. But he doesnt seem to recognize the forest from the trees. Trying to make money on a stock breathing solely by respirator is not my personal choice either. Unlike thieves and scoundrels of SA, he is honest and mentions the risk so I give him his due there.

        1. Grid, I didn’t want to expose some of our specific conversations about SA “professional” writers and their lack of competence and/or “ALPHA”…
          Alpha, one of the most commonly quoted indicators of investment performance, is defined as the excess return on an investment relative to the return on a benchmark index. For example, if you invest in a stock and it returns 20% while the S&P 500 earned 5%, the alpha is 15.
          Many of the SA “professional” writers that get paid per click (and are trying to be controversial) would not know how to pick a superior investment if it bit them in the lip.
          All the very best, Nomad

          1. Nomad, on the equity ledger side, “Seeking Alpha” is a fallacy. Appropriate index funds with rock bottom fund fees (with tax efficiency) is the only way to achieve “Alpha” over long term periods. Study after study shows this, yet there is always a snake oil salesman somewhere. For most people they would most likely be better served by not trying to be the few percenters that beat the market over 10 year periods and just be satisfied beating 90% of equity investors by index funds and seeking alpha in rock bottom expense ratios.

            1. Girdbird, I could not agree more! Unfortunately, if one has held individual stocks for many years – the capital gains tax from selling and reinvesting in a low cost index fund is prohibitive. I have looked at exchange funds but difficult even then to convert. But, for any new investor or monies – index funds!!

            2. I used to try to pick stocks and they usually transformed into the Dogs of the Dow. I quit doing that and just switched to SPY as part of balanced portfolio. I do better now. I don’t read Seeking Alpha but I perceive immense intrinsic value and that people’s lives are greatly enriched by it, even if not financially. I certainly enjoy being regaled on this site by tales of nimble Lord Xot, studious Owl, the rogue Rida with his sidekick Pender-something, and all those others I can’t recall at this moment. As colorful and diverse set of characters and plots as I’ve ever encountered outside of WWF. I prefer Tim’s site with all the actionable information, copious amounts of data, and of course love getting the bonus of entertaining commentary on Chicken Dinner Road and site of Seeking Alpha.

            3. Grid, From the Bessembinder study, “Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926” The means of course the other 96% were duds – or worse. And of the winners like Apple, how many investors actually held through all the ups and downs. On the equity side over time, unless one can consistently identify the 1/25 – and hold it through all the ups and downs, an index might be a vastly more profitable and less time consuming.

              For anyone interested in more info: https://www.marketwatch.com/story/why-picking-stocks-is-only-slightly-better-than-playing-the-lottery-2017-06-28

              Here’s the research paper: http://csinvesting.org/wp-content/uploads/2017/05/Bessembinder-Do-Stocks-Outperform-Treasury-Bills.pdf

              Indexes work because they have an automatic cleansing mechanism. S&P’s Inclusion and Exclusion metrics are what makes it excel long-term. It avoids bad picks and discards deteriorating issues without emotional, rationalized or hope-based decision making. I’ve certainly had a few of those babies.

              1. Alpha, I am not going to put food on the table being a stock picker myself that is certain….Your quote…without emotional, rationalized or hope-based decision making. I’ve certainly had a few of those babies.
                That is a big part for me… And why I own say an IPWLO over an AHT preferred. If IPO drops its just a buy sell imbalance or yield rerating of preferreds. When AHT drops one doesnt know why….So I would buy high and sell low…Rinse and repeat… I largely stick with what I trust that wont screw me over.

                1. Grid. We’re pulling on the same oar. Especially in the taxable accounts, I’ll usually opt for a boring lower yielding QDI any day over a riskier, over-leveraged and attention-needy non-QDI.

                  Missing I think from a lot of the narrative lately is that while yields are falling, risk is not. We’re not just paid less to hold, but the $/risk is dropping. After risk-adjustments, many lower coupon/higher credit issues are superior in yield over time. Time being the key variable.

              2. Alpha8:
                Thanks for sharing this profound paper. Reminds us all in a quantifiable way of the importance of indexing over the long term. I am a data driven guy.
                I am sincerely grateful for this site and for the wise, astute and timely comments and observations that have been posted by you, Gridbird, Nomadicmist and many others.

                1. Dave, Like you, I am grateful for the contributions of my III brothers and sisters. One certainty, we’re much more effective as a group than as a sum of individuals.

                  If you’re data driven and mindful of risk-adjustment you might like to take a look at: https://www.spratings.com/documents/20184/774196/2018AnnualGlobalCorporateDefaultAndRatingTransitionStudy.pdf

                  Especially note Table 26 on page 60; it’s updated for 2018. Yesterday I put together a quick back-of-the-envelope excel tool to quantify the risk data into the yield of any rated issue. Useful to create a more apples to apples comparison at various levels of risk. If you’re interested PM me via SA and I’ll be happy to share with you.

                  1. Alpha – Who you be on SA? There’s Alpha Gen Capital, Alpha Investor and Alpha Exposure but I don’t see Alpha8. It’s probably hard to believe but I’ve never created anything on a spread sheet but then again I’m of the Stone Age so that’ll be my excuse. I’ve tried a few times but it always seemed to me to take longer to set up the page properly than it would to solve straight on… Yeah, I know, archaic thinking… Having said that, I’d still love to examine what you’ve done………. How long did it take u to set up? I’m the same 2whiteroses on SA…..

      2. Nomadicmist:

        Well,actually, I DID do my own deep diligence. Owl worked the numbers and I am in agreement to a point since the securitizations are more complicated in terms of valuation. Thus he serves as a convenient reference. I also researched Frischer, Amster Howard and the other beneficial owners, reviewed all SEC filings since the 2019 notes were issued, scoured available databases for news articles, and did a CV search on the management. This would be a fascinating case study for B-school since there is more in play than mere number crunching. I examine the intangibles as much as doing a spreadsheet analysis, and in this case, I am impressed with the very efficient unwinding of the capital structure and the benchmarking of the strategic plan. There may be some surprises, obviously, but I expect full redemption of the notes. Chapter 11 is not an option in this case, and if the company didn’t consider restructuring as a feasible option, we would be looking at complete liquidation.

        1. O, I’m in agreement here…Owl did a good job of explaining where the money comes from to redeem RFTA next month, and although I’d disagree with his longer term thesis that the note maturing in 2024 is a good bet, I’d consider holding RFTA to maturity in August (+15%) or even playing RFTT for a short term bounce up from $16 to $20 (+25%) when RFTA does get redeemed. It goes without saying these are speculative positions to take.

        2. “O” I truly only wish you the best of profitable investing and hope this spin of the roulette wheel lands on “O” where you have placed your chips.
          Time flies over us but leaves it’s shadow behind, Nomad

          1. Nomad, my personal opinion is I respect Owls math…But math and bottom line results are 2 separate equations. I warned him about not seeing the forest from the trees with Frontier…And it bit him. 20 years of downward trends, bad management, and secular trends overwhelmed “math” and it was watching a train wreck.

        3. O, You have definitely earned the fearless trade award for July. You may win on this one episode, but the risk/reward indicates a loser if repeated over time. Wishing you luck on the outcome.

  4. I am novice investor and holding some RFTA that has a 8/2019 maturity. Is the underlying company obligated to cash out the holder when this Senior Note matures. I am aware that some of the pfds have been suspended.

    1. Gman, you’re in a helluva pickle. At first glance, I would say hold and see what happens, but that would depend on what I bought these for. If you’re anywhere near breaking even or getting out with a small loss, I’d probably have to take that loss. This company is in horrible shape and like Tim said, no financials since last year?!? They could certainly default on this debt and you’d likely not be able to get out but for pennies on the dollar. Having been in this situation with some failing MLP’s, my personal move would be to sell and take the loss. But that’s just me.

      1. A4I, you are showing your hand on your personal investing style. Shame on you. :)….But, you wont be surprised to know my opinion mirrors yours, lol. RAIT preferreds were dumpster diving nirvana on SA a few years ago. I always posted “I smell a RAT with RAIT” whenever an article would pop up then. So needless to say, I stayed a way. This type of investing is too sophisticated for my small CC sized noggin.
        Qniform and Gman if you go to SA and use outline.com you can pull up a bunch of articles about the RAIT preferreds and baby bonds. Look for a writer named The Owl….A very intelligent number cruncher who delves part of his money in these high risk issues such as the above, Wheeler and CBL preferreds and Frontier. The total dung heep of the investing world is where he resides. But also keeps a large safe stash in boring bonds so he is not risking his retirement over them. But he does have some good info if you want to dig it out and some of it is this year’s material. You will learn something. He does true analysis not Rida Moron cut and paste with regurgitated management panderings. IMHO of course! 🙂

      2. Thanks for the reply. I could get out with a small loss. With interest payment included it would be a small gain. So that answers that question. I understood that if they go into bankruptcy before the maturity date of RFTA then all chips off the table but not sure what happens if everything is in order on maturity date.

        1. Gman, I think you should hold on to your RFTA shares and reap the reward when it pays off in another month. Sure there’s some risk, but its current price does not reflect impending doom in my opinion. Don’t be bluffed into selling. Of course its much easier to hold this opinion while sitting in the peanut gallery, but I’m rooting for you to score a big win!

        2. If it makes it to the maturity date, then your brokerage will likely change the ticker symbol to have a “CL” on the end of it, it’ll stop trading, and it will sit until RAIT cashes it out with the brokerage. Could tie your money up for a few weeks to a month. That’s been my experience anyhow…

        3. Some people say you have to learn how to lose money before you learn how to make money. I’m not sure exactly what that means. Nevertheless I learned how to lose money eventually traced down to misplaced optimism. When that company’s common traded for $150 about 2 years ago and now trades for $.45 that is not optimistic sign. Anybody who hung on through that probably suffers from misplaced optimism. Assuming you are diversified then taking a small loss isn’t be a big deal but averaging in a zero is. Hope it works out whatever you decide.

  5. Hi Tim. RFTA is in that short/medium term basket I mentioned previously. Of a couple dozen securities in my experimental hold to maturity or default, RAIT may be the first after-default recovery test I get.

  6. I feel like I would have better odds in Vegas than I would investing in a mReit. I would at least have a lot more fun.

    1. Sold all Ras Financial preferreds + the baby bond RFTA years ago. On this one, someone alerted me from Richard Lejeune. On the other hand, not all mREIT preferreds are to be trashed, e.g. NLY preferreds came back alive and whole after the 2008 and the second dip March 2009. I do not hold any mREIT commons. ONLY preferreds from NLY, AGNC, CIM, TWO, plus MFA-B and NRZ-A.

      1. johnkcal—I would hold those particular mREIT preferreds–and have off and on over the years. On the other hand I don’t care for the common shares in any of them–just not in my wheel house.

        1. Tim, thanks for your comment. You are correct. Even the venerable or at least one of the oldest and largest NLY preferreds could follow the commons down as it did.

    2. Hi Jacob–I would own most of their preferreds–but the common shares are just too complex for me to try to deal with most of the time.

      1. If my income goal was at 7-8% I’d probably be compelled to own some of them. But for me the risk spread is too wide for the extra 2-3%.

        Not sure what the mReits would be at if they were S&P rated but I think you would see a lot of Ccc/B.

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