| August 3, 2001
MFP Financial recently announced solid financial
results for fiscal 2001, ended March 31, 2001. For the full year, MFP
earned $1.66, slightly below the record performance in fiscal 2000, and
showed a progressive improvement throughout the period. Encouragingly, MFP
realized residuals of 122% of book value in fiscal 2001 compared to 111%
in the previous year, as leased equipment was resold more profitably. New
business volume increased 11% from fiscal 2000 and assets under management
surpassed the $1 billion mark for the first time in the Company's history.
Despite these results, MFP continues to trade well below its book value of
$13.40 and at less than 6 times prior year's earnings. In an effort to
reward investors, management returned approximately $12.5 million to
shareholders in the form of dividends and the repurchase of 700,000 common
shares under an issuer bid program.
Unfortunately, the shares have been held back due to
an unforeseen development. MFP Financial has confirmed that it has been
served with a Statement of Claim on behalf of the City of Waterloo
regarding the financing of the "Millennium Recreation Park"
project. Mr. Peter Wolfraim, President of MFP, has stated, "We had
been in discussions with the City of Waterloo over their alleged
misunderstanding of the terms of the financing of the project. It is
unfortunate that the City has chosen to litigate this matter rather than
continue those discussions. MFP intends to vigorously defend the
action." The transaction contributed $0.40 per share to MFP's net
income in fiscal 2001 but at this time it is extremely difficult to
predict the outcome or potential fallout from the claim.
November 9, 2001
MFP Financial was the subject of an unfavourable
article in the Globe and Mail last week. The article implied that the City
of Toronto taxpayers were losing millions in "irregular" leasing
deals. After discussions with Peter Wolfraim, President and CEO, we are of
the opinion that the piece was misleading. In our view, it is the
competency of staff members of the City of Toronto that was being
questioned, not MFP’s business practices. Undoubtedly, the lawsuit
brought by the City of Waterloo has led many of MFP’s customers,
including the City of Toronto, to re-examine the details of their own
lease agreements. Although the story "makes good copy", it is
our sense that these transactions were completed between financially
sophisticated parties with significant legal opinions and appear to be
legally binding.
Obviously, investors would like to see MFP put this
issue behind them, resolve the lawsuit and return to the business of
providing financing solutions at competitive rates as soon as possible.
Though we expect that future business will be more highly scrutinized, we
don’t believe that substantial long-term harm will result from the
situation. Our comfort level is bolstered by MFP’s recent quarterly
performance, its dividend, which is currently yielding over 8%, its
positive cash flow generation and its recently announced share buyback.
Overall, we believe investors will have to be very, very patient until
this situation plays itself out.
January 4, 2002
The dispute between MFP Financial and the City of
Toronto has received more than its fair share of news coverage in recent
months. After coming under significant downside pressure, the stock
has stabilized, as the likelihood of a settlement improved.
Essentially, MFP's case was strengthened by the opinion of the City's own
lawyer that the deal was "legal, valid and binding". MFP
has maintained a low profile throughout this period in an effort to
minimize any additional fallout from the situation.
On December 20, 2001, the City of Toronto convened a
special council meeting to consider the proposed settlement offer.
Unfortunately, council was adjourned for the holiday season before a final
decision could be reached but will be reconvened in January. In
light of the ongoing nature of the negotiations, we believe that it would
be ill advised to comment further until the matter is resolved. We
will continue to monitor the situation closely and will provide an update
once MFP and the City of Toronto reach an agreement.
April 26, 2002
While the high profiled financial dispute between
MFP Financial and the City of Toronto has quieted down over the past
several months, unfortunately, no final resolution has been reached.
We recently spoke with management and have learned
that business has been quiet with new contract originations down year over
year due to a soft technology market. However, favourable lease residual
realizations of 141% compared to an equivalent 117% performance the
previous year is cushioning the weak environment.
Book value on December 31, 2001, after the inclusion
of a $25 million pretax provision to cover litigation matters such as the
City of Waterloo settlement, was $12.58. Overall we believe that MFP is
fundamentally cheap. The company is presently debt free with regard to its
banking lines, remains profitable and is currently reviewing all its
strategic options. This could involve, we believe, a sale of assets or
even a merger/takeover.
MFP, having experienced a very difficult year, is in
transition and we expect a number of directional changes to occur over the
next 6 to 12 months.
August 9, 2002
Given the recent legal issues surrounding MFP
Financial, it is no surprise that the stock has remained under pressure.
However, we have been in close contact with Peter Wolfraim, President and
CEO, who has repeatedly assured us that the Company intends to vigorously
defend itself. In the meantime, the business of providing financial
solutions for technology, equipment and construction spending must go on.
MFP has recently reported its fiscal 2002 results, which not unexpectedly
reflected the difficulties experienced of late. For the year, the Company
reported a net loss of $0.30 per share, including a special charge
relating to litigation matters, compared to earnings of $1.66 in fiscal
2001. Excluding the special charge, earnings would have totaled $1.25 per
share. The shortfall could be explained by the elimination of asset based
financing activities in the current year and generally difficult market
conditions. We believe that MFP Financial is working extremely hard at
clearing its name without damaging existing client relationships or
scaring off new business. Investors will have to be patient until the
legal matters are settled but we believe that the Company will be able to
successfully weather this storm eventually.
October 4, 2002
The City of Toronto’s MFP Financial Services
public inquiry was postponed on Monday September 30, 2002 due to an
Ontario Provincial Police investigation.
The Toronto Star reported on its front page
yesterday that a lobbyist had requested $150,000 to expedite a computer
deal. This disclosure appears to have nothing to do with MFP. In fact,
what I have been reading in three Toronto newspapers seems to reflect more
on a financial mess in the City of Toronto as opposed to any MFP
irregularity.
In chatting with Peter Wolfraim, MFP’s President
and CEO, twice in the last several days, Peter continues to stand by his
previous statement that his company has done nothing wrong. Moreover, it
is interesting to bear in mind a Globe and Mail article published Friday
June 14, 2002 when it was stated:
“While the Committee (Toronto Council’s Audit
Committee) accepted the plan for the inquiry, it decided not to deal with
a report that recommends the City settle its dispute with MFP over how
much money it owes the Company. … City Lawyer Alan Lenczner said it
would cost $1 million to fight MFP’s legal claim and would be ‘almost
impossible’ to win. He also said if the City loses, it will have to pay
both MFP’s legal costs and back interest on $9 million at the rate of
24% a year, and will likely forfeit $4.5 million MFP has offered to settle
the City’s counterclaims.”
In the meantime, MFP presently remains bank-debt
free, is still profitable and has good cash flow. In fact MFP has just
renewed its Normal Course Issuer Bid. This bid will commence on October 7,
2002 for a 12-month period. The maximum number of shares that can be
purchased under the issuer bid through the Toronto Stock Exchange will be
equivalent to 5% of the common share outstanding or approximately 460,000
shares.
As of September 20, 2002 426,300 common shares had
been purchased during the previous year’s issuer bid at an average
purchase price of $6.79. Given that MFP’s net book value per share as of
June 30, 2002 was approximately $13.00, the repurchase of these shares was
anti-dilutive, opportunistic and further increases MFP’s book value.
February 7, 2003
The ongoing judicial inquiry into
computer leasing deals between the City of Toronto and MFP Financial
continues to receive more than its fair share of press.
The inquiry has revealed some startling practices and instances of
questionable judgment. However,
the focus has shifted away from MFP to concentrate on the attitudes and
ethics of those at City Hall. The
scrutiny is showing poorly on the individuals involved.
In the meantime, MFP’s stock has recovered from its lows as the
inquiry sets its sights on the City as opposed to the Company.
On January 22, 2003 MFP Financial
reported financial results for the third quarter of fiscal 2003.
In the quarter, the Company earned $2 million or $0.22 per share
compared to $2.6 million or $0.27 per share after adjusting the prior
year’s results for the special charge related to litigation matters.
The decline in net income was attributed to lower levels of
technology trading and leasing. Business investment and capital spending on technology and
related infrastructure remain depressed and caution prevails in the
marketplace. On the bright
side, because businesses are keeping older equipment, MFP’s residual
realizations remained strong, coming in at 131% for the fourth quarter and
138% for the year to date.
Amid
an extremely difficult operating environment and embroiled in a judicial
inquiry, MFP Financial is doing all it can to protect shareholder value.
With the stock trading below book value of $13.66, MFP has bought
back almost 40,000 shares under its normal course issuer bid in the third
quarter. Year to date, MFP
has repurchased 320,000 shares at an average cost of $6.19.
In light of the difficulties facing the Company in the near term,
we believe that this is an excellent use of MFP’s capital. All the per-share valuation metrics will increase and, as the
float shrinks, privatization or the outright sale of the Company becomes
more and more likely.
August 1, 2003
As the press coverage dissipates and the inquiry
drags on, MFP Financial continues to recover from its lows. Operations
remain profitable and in the first quarter of fiscal 2004, MFP reported
net income of $0.22 per share compared to $0.15 per share a year ago.
However, the Company's owned and securitized lease portfolio contracted
approximately 22% to $395 million indicating ongoing weakness in the
technology leasing industry. Business volume declines were offset by
expense reductions of $1.6 million or 35% on a year over year basis.
Residual realizations of 152% on $4.8 million of expiring leases also
helped the bottom line. Cash from operations was used to purchase 72,600
shares in the quarter at an average price of $7.28, which is well below
the Company's book value of $13.40 per share and therefore anti-dilutive.
On a final note, Peter Wolfraim, President and Chief
Financial Officer, announced his intention to retire at the next Annual
General Meeting to be held September 24, 2003. The Board of Directors has
formed a special committee to fill the position and "review strategic
options for the future".
May
7, 2004
MFP Financial recently reported results for the
third quarter of fiscal 2004, ended December 31, 2003. Despite all of the
distractions, MFP continues about its business. For the quarter, the
Company earned $0.19 per share and $0.61 per share year to date. Although
MFP’s lease portfolio is in runoff, declining to $360 million, the Company
did generate approximately $25 million in new business in the quarter.
Residual realizations were 157%, high by historical standards, reflecting
the repurchase or refinancing of leased equipment by existing customers.
The combination of positive earnings and an ongoing share buyback program
has boosted book value to $13.71 per share on a fully diluted basis.
We have very little to report on the litigation
front. During the most recent quarter, the Company settled with the City
of Hamilton and continues to negotiate with the City of Windsor / County
of Essex. The outcome of the City of Toronto inquiry is uncertain to say
the least. MFP currently holds over $50 million in cash and marketable
securities as a contingency against these matters, although the Company
has repeated its intention to vigorously defend itself.
June 18, 2004
After all the trials and tribulations of the past
few years, MFP Financial reported results for fiscal 2004 that reflected
“a gradual return to normal operations”. For the fourth quarter of 2004,
MFP earned $0.20 per share compared to a loss of $0.52 per share in the
fourth quarter of 2003. For the full fiscal year, MFP earned $0.81 per
share compared to $0.05 per share a year ago. The Company benefited from
the absence of income tax adjustments and litigation provisions that had
adversely affected the fiscal 2003 results. Fully diluted book value now
totals $13.97 per share.
Operationally, the owned and securitized lease
portfolio declined 27% to $328 million as runoff exceeded new business
volumes of $98 million. Residual realizations remained high at 161%
compared to 136% in fiscal 2003. Importantly, MFP’s cash and marketable
securities position increased $16.1 million to $55.1 million on March 31,
2004. This cash has served as a buffer against the Company’s well-known
legal matters. However, as the probability of a damaging settlement
against MFP diminishes, the need to hold this reserve lessens. As a show
of confidence, the Company re-instituted a dividend policy and will pay
$0.10 per share to shareholders of record as of June 30, 2004 for the
first time since November 2001.
December 31, 2004
With the closing submissions posted and dates set in
2005 for oral responses, the City of Toronto MFP inquiry is finally
winding down. As the focus shifts away from the Company, MFP has distanced
itself from the troubling episode. On October 1, 2004 MFP Financial
Services Limited became CLEARLINK Capital Corporation. The press release
summed it up quite nicely, “the majority of the issues discussed under the
‘MFP Inquiry’ banner are either not true or have nothing to do with the
Company. Changing the name gives us the best opportunity for putting this
behind us and moving forward with our business plan”. The stock continues
to trade on the TSX under the new symbol CNK.
CLEARLINK has reported results for the first half of
fiscal 2005 that demonstrated the profitable and stable nature of the
underlying business. In the second quarter of fiscal 2005, CLEARLINK
earned $0.17 per share. For the first six months of the current fiscal
year, CLEARLINK generated profits of $0.34 per share. The Company’s solid
balance sheet, including over $45 million of cash and marketable
securities, has allowed the Company to buy back a significant amount of
stock and reinstitute a quarterly dividend of $0.10 per share. At current
price levels CNK trades at approximately 0.7 times its book value of
$14.07 and yields just over 4%.
Patient investors will have noticed that shares of
CNK have slowly but steadily appreciated over the past two years. The
stock actually reached a 52-week high of $9.93 on November 24, 2004.
However, with the stock still well below tangible book value, we believe
that either a buyout or privatization would eventually make sound
financial sense.
July 22, 2005
CLEARLINK Capital Corporation has reported results
for the 2005 fiscal year, ended March 31, 2005. Although the legal
troubles that have surrounded the organization are no longer being
reported on a daily basis in the newspapers, they continue to impact the
underlying business. Since the Company has been unable to negotiate a
settlement, management prudently increased the litigation reserve by $20
million or $13.4 million after tax. Although non-cash in nature, the
reserve increase flows through the income statement and reduces
shareholders’ equity. Given the circumstances we believe that the
provision is both justified and conservative from an accounting
standpoint.
Getting down to brass tacks, net loss for the fourth
quarter, including the litigation provision, was $11.8 million or $1.32
per share. For the full year, CLEARLINK reported a net loss of $7.1
million or $0.80 per share. Income from operations was $9.4 million in
fiscal 2005, down from $11.2 million the previous year. Essentially, lower
lease activity levels offset increases in equipment trading and investment
income. As expected portfolio runoff exceeded new business volumes and it
is more than likely that the business will continue to wind down over
time.
Because CLEARLINK Capital’s largest assets are
financial in nature, including cash, marketable securities and leases, we
believe that the business is worth at least book value. Even after the
loss related to the litigation provision, fully diluted net book value per
share is $12.52, which is 25% above the current trading price of the
shares. Because the shares trade below book value, the Company repurchased
and cancelled 131,600 shares at an average price of $9.90 in fiscal 2005.
We continue to believe that CLEARLINK will either be sold to a financial
buyer or will be taken private by management and insiders.
July 28, 2006
Recent developments require an update on CLEARLINK
Capital Corporation. On January 17, 2006 CLEARLINK announced a definitive
agreement to sell its leasing business, lease portfolio and related
liabilities to ICON Capital. ICON is a US-based, independent equipment
leasing and financing company that runs several income generating, limited
liability companies for investors. The deal was completed on March 8th for
net proceeds of approximately $56.8 million. CLEARLINK will “continue to
administer the remaining leases but will not be writing any new leases. It
will further assess opportunities to sell portions of the remaining
portfolio and in that regard has, subject to certain events, committed to
a further asset sale to ICON of approximately one-half of the remaining
lease value”.
As we have suggested in the past, the Company is
essentially in windup mode. With the release of the Company’s fiscal 2007
Q1 financial results, management announced a $7.00 per share special
dividend. This will be financed using cash and marketable securities,
which currently total approximately $100 million.
We now need to look at the balance sheet and examine
the intrinsic value of the remaining assets. As of June 30, 2006 net book
value on a fully diluted basis was $12.46 per share, or $5.46 excluding
the special dividend. This should approximate the fair value of the assets
since they consist mostly of cash. However, we still need to consider the
possibility that the cost to settle the remaining litigation matters is
greater than current provisions. Once a “fair and reasonable” settlement
is reached, we expect the Company to either be completely wound up or sold
to a financial buyer.
In response to the dramatic changes, CLEARLINK
Capital has once again changed its name. The Company is now known as
Renasant Financial Partners Limited and trades on the TSX under the symbol
REN.
September 22, 2006
After almost five and a half years, several
well-publicized lawsuits and two name changes we have sold our entire
position in Renasant Financial Partners (formerly MFP Financial) at a
profit. Without retelling the entire story, it was a long and trying
process. The more salacious details made the front pages of major
newspapers and the stock occasionally went “no-bid”. Despite all the
grief, we hung on to our position until we were able to receive a fair
price for our shares.
As we discussed in previous comments, the Company
has essentially been in windup mode for the past two years. The sale of
the leasing business and lease portfolio to ICON Capital paved the way for
a $7 per share special dividend to shareholders. Although the book value
of the remaining assets is $5.46 we were willing to sell our shares at a
small discount to this price for several reasons. First, not all of the
lawsuits have been settled, so the potential for additional adverse
developments exists. Second, there will be costs involved in closing the
remaining business and physically closing the doors. Finally, given the
illiquid nature of the situation, we were willing to make a concession to
unload our entire stake.
All in all, we believe that management did the best
they could in an extremely difficult situation. Our patience was tested
but we were able preserve our capital and eventually generate a positive
return. We are presently redeploying these funds into other, deep value
opportunities, which are starting to crop up during the current market
weakness.
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