Harbor currently trades at net cash despite a seemingly profitable regional airline business and long-term private equity owners with a strong track record that are buying back shares
We haven't heard anything incremental from the Company since my post. If you're referring to the recent price action, no specific updates from my side - HRBR moved to the expert market this week given lack of recent filings, making it difficult to trade. Current prices are reflective of that dynamic on low volume, rather than any fundamental changes in the business. No updated views as to if/when they file again. In any case, whether dark or not, existing HRBR investors own a profitable airline at much too cheap a valuation
I agree. How long can they procrastinate with the filings? They use the term “practicable” which doesn’t give us a good feeling it will come by any certain date. In the meantime they are retiring the stock at very cheap prices from people who are not up to date with information. Notice also that no one in management owns any stock at all. So they are paid well but have no incentive to increase the price of the stock.
No real sense of timing (although I can't imagine this restatement is that complicated), but agreed. So long as the AA contract is profitable and they don't actively screw over the minority shareholders, it shouldn't matter too much. We'll see
It doesn’t seem complicated and that is one of the things that bothers me. As you pointed out in your article the owners never really wanted to go public, they just wanted the tax losses. They were forced to start filing. They have done nothing since to enhance the stock price, and if given the chance, they would go dark again. They always mention in it in their filings that it is a possibility; which could happen if there was less than 300 registered shareholders, and that tally is only taken once a year on 12/31. Savvy, sneaky, whatever word you want to apply to them, I think at the end of the day, all they want is to make as much money for themselves as possible. Thanks for your article and your responses.
From my understanding, if they have less than 300 shareholders of record, they can go dark legally. Per the FY22 10-K: "Harbor would again become eligible to suspend its public reporting obligations if it (i) determines in accordance with applicable SEC rules it has fewer than 300 stockholders of record as of certain points in time"
so if it goes dark, they can do whatever shit they want? then we have zero knowledge of what is going on. they can just stay silent for 20 years and u are just holding the shares? and it is perfectly legal?
Yeah agreed, it definitely could get expensive (6%/year currently, which could increase by 1%/year every 6 months after 12/31/23). Keep in mind these divs could also be PIK'd rather than paid in cash if there is a cashflow constraint
I don't have any specific views, but it's important to watch in the next few filings - Ultimately, the increase is at the election of the holders (i.e. Southshore, which has the same ownership group as Amun, which owns the equity directly), so we'll see what they choose to do (increase the rate, do nothing, convert the prefs, etc.). I would assume they want some value to accrue to the common equity given their ownership and the share repurchases, but it's something to monitor for sure
Thank you Rohan. The majority owners are balls deep in equity and eventually hope to have their big pay day from that. These guys are not that young and I would assume they would love their pay day sooner rather than later.
Hopefully! Most important things in the next report will be the profitability of the AA contract and what the majority owners do with the CFs (buybacks, etc.), which will give us a sense of how they're thinking about this investment
There are 4m Series C prefs outstanding (held at a value of $13.2m on the books), and they are currently convertible into a maximum of 16.5m common shares at ~$0.15091 each, meaning that about ~$11m in prefs would remain outstanding post-conversion. When looking at this from a liquidation standpoint, you want to make sure you account for both the new shares and the prefs that would remain outstanding. My enterprise value build captures that already
Hi Rohan,
I wrote up HRBR on Costel’s newsletter. I would love to chat if you have time about the company. My email is costel@degcap.com
Thanks for the note and for your work on the name. Just sent you an email - looking forward to connecting!
pls place updates here.
We haven't heard anything incremental from the Company since my post. If you're referring to the recent price action, no specific updates from my side - HRBR moved to the expert market this week given lack of recent filings, making it difficult to trade. Current prices are reflective of that dynamic on low volume, rather than any fundamental changes in the business. No updated views as to if/when they file again. In any case, whether dark or not, existing HRBR investors own a profitable airline at much too cheap a valuation
I agree. How long can they procrastinate with the filings? They use the term “practicable” which doesn’t give us a good feeling it will come by any certain date. In the meantime they are retiring the stock at very cheap prices from people who are not up to date with information. Notice also that no one in management owns any stock at all. So they are paid well but have no incentive to increase the price of the stock.
No real sense of timing (although I can't imagine this restatement is that complicated), but agreed. So long as the AA contract is profitable and they don't actively screw over the minority shareholders, it shouldn't matter too much. We'll see
It doesn’t seem complicated and that is one of the things that bothers me. As you pointed out in your article the owners never really wanted to go public, they just wanted the tax losses. They were forced to start filing. They have done nothing since to enhance the stock price, and if given the chance, they would go dark again. They always mention in it in their filings that it is a possibility; which could happen if there was less than 300 registered shareholders, and that tally is only taken once a year on 12/31. Savvy, sneaky, whatever word you want to apply to them, I think at the end of the day, all they want is to make as much money for themselves as possible. Thanks for your article and your responses.
so it is okay to go dark and do nothing if there is less than 300 shareholders? otherwise it will be illegal and they can get sued?
From my understanding, if they have less than 300 shareholders of record, they can go dark legally. Per the FY22 10-K: "Harbor would again become eligible to suspend its public reporting obligations if it (i) determines in accordance with applicable SEC rules it has fewer than 300 stockholders of record as of certain points in time"
so if it goes dark, they can do whatever shit they want? then we have zero knowledge of what is going on. they can just stay silent for 20 years and u are just holding the shares? and it is perfectly legal?
Thanks for the reply. I was referring to the possible interest cost of the preferred shares. It escalates and can get pretty expensive to the company.
Yeah agreed, it definitely could get expensive (6%/year currently, which could increase by 1%/year every 6 months after 12/31/23). Keep in mind these divs could also be PIK'd rather than paid in cash if there is a cashflow constraint
I don't have any specific views, but it's important to watch in the next few filings - Ultimately, the increase is at the election of the holders (i.e. Southshore, which has the same ownership group as Amun, which owns the equity directly), so we'll see what they choose to do (increase the rate, do nothing, convert the prefs, etc.). I would assume they want some value to accrue to the common equity given their ownership and the share repurchases, but it's something to monitor for sure
Thank you Rohan. The majority owners are balls deep in equity and eventually hope to have their big pay day from that. These guys are not that young and I would assume they would love their pay day sooner rather than later.
Hopefully! Most important things in the next report will be the profitability of the AA contract and what the majority owners do with the CFs (buybacks, etc.), which will give us a sense of how they're thinking about this investment
Great write up. Any thoughts about the series C preferred and the possible implications it may have on a liquidation scenario. Thanks
Thanks for reading and for the comment!
There are 4m Series C prefs outstanding (held at a value of $13.2m on the books), and they are currently convertible into a maximum of 16.5m common shares at ~$0.15091 each, meaning that about ~$11m in prefs would remain outstanding post-conversion. When looking at this from a liquidation standpoint, you want to make sure you account for both the new shares and the prefs that would remain outstanding. My enterprise value build captures that already
Let me know if that helps