Q: hi folks:
not a question; just a PSA for the membership
executive summary: mgmt is likely the most important issue when buying shares in a business
in the case of EFN (as with newcourt) it sure seems like mr Hudson learned nothing
a sad loss of capital
(this from august 2015 )
Asked by Robert on August 27, 2015
Q: hi folks
further to an earlier email on element with respect to mgmt
I remember when newcourt and steve hudson had their heyday in financing in the 1990's and early 2000's
from my recollection there was a lot of 'creative accounting' (a term updated recently to "financial engineering")
question: in light of this 2.2BB issue today (which increases the company capital structure by almost 40%) what makes anyone believe that this mgmt is any more competent than when they near bankrupted newcourt?
one thing of interest being they didn't borrow the whole 2.2bb
comments?
thanks for your insight
robert
5i Research Answer:
Element learned some very good lessons at Newcourt, and has not repeated them in companies since. It was not perfect, but if management takes away valuable lessons we can still support them (Tourmaline management had some issues at Berkley Petroleum in the 1990s, and learned lessons there also). While the ending was not what some expected, keep in mind that Newcourt was still successfully sold (for more than $2.4 billion). We have quoted a Globe article below: We think the key is the short term borrowing switch. This issue does underscore that shift.
Mr. Hudson says he has learned his lessons from Newcourt. Don't expand too fast with acquisitions. Use the most conservative accounting. And perhaps most crucially, don't borrow short-term and lend long-term.
Newcourt funded itself in the commercial paper market, borrowing for a few days or weeks at a time, while lending money for months or years. As a result, the company constantly had to roll over its financing. When markets shut down because of a financial crisis in Russia and Asia, Newcourt was on thin ice.
not a question; just a PSA for the membership
executive summary: mgmt is likely the most important issue when buying shares in a business
in the case of EFN (as with newcourt) it sure seems like mr Hudson learned nothing
a sad loss of capital
(this from august 2015 )
Asked by Robert on August 27, 2015
Q: hi folks
further to an earlier email on element with respect to mgmt
I remember when newcourt and steve hudson had their heyday in financing in the 1990's and early 2000's
from my recollection there was a lot of 'creative accounting' (a term updated recently to "financial engineering")
question: in light of this 2.2BB issue today (which increases the company capital structure by almost 40%) what makes anyone believe that this mgmt is any more competent than when they near bankrupted newcourt?
one thing of interest being they didn't borrow the whole 2.2bb
comments?
thanks for your insight
robert
5i Research Answer:
Element learned some very good lessons at Newcourt, and has not repeated them in companies since. It was not perfect, but if management takes away valuable lessons we can still support them (Tourmaline management had some issues at Berkley Petroleum in the 1990s, and learned lessons there also). While the ending was not what some expected, keep in mind that Newcourt was still successfully sold (for more than $2.4 billion). We have quoted a Globe article below: We think the key is the short term borrowing switch. This issue does underscore that shift.
Mr. Hudson says he has learned his lessons from Newcourt. Don't expand too fast with acquisitions. Use the most conservative accounting. And perhaps most crucially, don't borrow short-term and lend long-term.
Newcourt funded itself in the commercial paper market, borrowing for a few days or weeks at a time, while lending money for months or years. As a result, the company constantly had to roll over its financing. When markets shut down because of a financial crisis in Russia and Asia, Newcourt was on thin ice.
