Barrons: Only the house wins

[adios]

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What I perceived from this article was that the U.S. market is going to disappear, as they can get to any company that would try to serve the U.S. customer base. No one in this thread has addressed this point, and I'd like to hear more about it. It seems as if our government is going to see that all companies pull out. We're just seeing the biggest ones first. The smaller ones will eventually follow (?).

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Well I've stated in other threads that IMO the U.S. government will be very zealous in prosecuting companies whenever possible. I don't think we're likely to see company execs extradited but I wouldn't feel too safe if I was a PartyGaming exec visiting the U.S. Apparently the Barron's author concurs. The IRS pursuit of taxes is also an interesting side show and I don't think it would surprise many people that the IRS might be zealous in it's pursuit of big tax payments.

[cpk]

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They are not bound by US laws and the laws of Gibraltar and the UK may be different in a bankruptcy scenerio. Under US law, there are basically 2 types of bankruptcies: Chapter 11 (reorganization) and Chapter 13 (liquidation). Many times 11's become 13's, and there are other grades in between which I won't get into.

Assuming the worst case scenario (chapter 13), the first people to get paid are the secured creditors, then the unsecured creditors, shareholders and then if anything else is left over, the players and employees (employees usually get the first crack though). Monies to the trustee are in there somewhere too. There are some wrinkles state to state, but that's more or less what would happen.

It would not be a good thing for anyone having money on the site though.

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You have that totally bollixed up.

A liquidation is under Chapter 7 of the Bankruptcy Code. Chapter 13 covers restructuring plans for individuals with a regular source of income. And you have the order wrong--employees are considered unsecured creditors, and they usually get the highest priority in that group. If Party were a US company, players would also be considered unsecured creditors. But that's ultimately up to the court.

The only way shareholders get anything if there is equity left after liquidation. But the whole point of a Chapter 7 is that a company is insolvent and has liabilities in excess of assets. In that case, shareholders get absolutely nothing. Usually if a company has short-term problems with debts but is generally solvent, they go for a Chapter 11 restructuring instead. Even in this case, though, shareholders often get screwed.

Not that any of this matters--UK bankruptcy laws are totally different and totally incoherent. Different rules apply in England than in Scotland, for example--one presumes that Gibraltar has yet another set of laws.

[sbj99]

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Really? I didnt look at the numbers carefully?

OPERATING cash flow (excluding working capital adjsutments) for the first 6 months of the year was $380M. Thus for the third Q of the year we should expect $190M, not $100M. Given the reduction in size of the business, the working capital adjustments should be pretty neutral (recievable should be reduced by a similar % as payables).

Now in cash from investing activities, we will have a reduction based on the acquitions, which you claim is $80M, I assumed $130M. So my assumptioni is conservative.

Cash Flows from Investiong activities should be close to neutral sicne there will be no dividned payment.

So we end with $190 minus CASH OUTS ($190M would be all of them - decrease in payables) PLUS the decrease in recievables ($155M total, maybe reduced by $100M - so + $100M) MINUS the acquisition ($80M as you say) = $20M

So Party would be left with $20M in ADDITION to the $130M they already have on hand. That leaves $150M of extra cash AFTER 100% players cash out.

You bring up teh $90M taxes payable. This is a GAAP number and will not be actually paid off. It will take years for this figure to be reduced to zero and quite possibly could increase in the short term. This not a bill they are about to pay off, it results from the difference in tax accounting and GAAP accounting.

There is no pending cash crisis. My figure could probably be reduced by the $40M revolving credit if it is being pulled and cannot be replaced. Even so, it is not close.

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My apologies, I was the one who wasn't being careful with the numbers. I made a silly arithmetic error. Cash from ops since 6/30 should add roughly $190m, not $100m. This would put them in position to cover customer cashouts. One thing I noticed is transaction costs which has been a significant cost- wouldn't they take a one-time hit here with massive cashouts?

cash flow from investing, I assumed they paid a div last quarter and stopped the current one, looks like I was mistaken so should be neutral.

Is the decrease in recievables ($155M total, maybe reduced by $100M) due to the payables offsetting them for net trade and other payables or am I missing something? I simply looked at receivables and payables(incl. taxes) being a wash, but since this tax item won't be paid anytime soon it should add $90m to cash.

I included the $40m on the old credit facility because they entered a new one and stated only drawn $10m. I'm assuming this means that the $40m was paid down.

Thanks for clearing all of this up, it looks like they'll have no problem covering deposits without relying on the credit facility. I'm glad I was wrong, and it's amazing that Baron's didn't put additional cash into the equation as we know the company is a big cash generator.

[2Tone]

To me the bigger issue here seems to be whether Party does mix player and house money. In looking at their site, there doesn't seem to be any definitive statement saying they don't (Stars front page advertises that they do no such thing). Does Party actually do this? Can that be legal? If they don't, do they should at the very least demand a retraction from Barrons.

[DpR]

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My apologies, I was the one who wasn't being careful with the numbers. I made a silly arithmetic error. Cash from ops since 6/30 should add roughly $190m, not $100m. This would put them in position to cover customer cashouts. One thing I noticed is transaction costs which has been a significant cost- wouldn't they take a one-time hit here with massive cashouts?

cash flow from investing, I assumed they paid a div last quarter and stopped the current one, looks like I was mistaken so should be neutral.

Is the decrease in recievables ($155M total, maybe reduced by $100M) due to the payables offsetting them for net trade and other payables or am I missing something? I simply looked at receivables and payables(incl. taxes) being a wash, but since this tax item won't be paid anytime soon it should add $90m to cash.

I included the $40m on the old credit facility because they entered a new one and stated only drawn $10m. I'm assuming this means that the $40m was paid down.

Thanks for clearing all of this up, it looks like they'll have no problem covering deposits without relying on the credit facility. I'm glad I was wrong, and it's amazing that Baron's didn't put additional cash into the equation as we know the company is a big cash generator.

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The payables are the players accounts. I am not positive what exactly the recievables are (I can think of a few possibilities) becasue I do not follow this comapany, but whatever they are, they are typically dependant upon revenue. Thus as the company get smaller, the amount of recievalbes they carry will be reduced. It is very reasonable to assume that they would be reduced by the same percentage that revenue (or perhaps player accounts in this case) is reduced. It is just money owed the company in the short term, so a company that makes less money than it did will have fewer account recievable.

I didnt read the Barrons article, but it would not be the first time they put out some bush league analysis.

[daveymck]

The additional payables monies I would guess would be affiliate funds and that would be the discrepancy between Payables and receivables, with segregated player funds the amount owed would still be higher as I dont expect affiliate monies to be segregated.

More likely scenerio if they are going down the pan is for October/november affiliate payments to be delayed/cancelled and the affiliate program shut down.

I am unsure if UK banrupcy laws would come into play here if they did run out of cash (with them being gibralter based), but if it did I think players would be classed as unsecured creditors and would be paid after secured creditors. It could be if that happened though people would only get a percentage back (this is guess work on my part form other companies I am aware this happening too).

However I think it would be more likely for them to go into receivership (if they were on verge of bankrupcy) and try and keep trading as a going concern and paying off outstanding US debtors as they make euro profits.

I just cashed out though off to Full Tilt until the dust settles over the next few weeks.

[Illinois Jim]

Here's the link to the Barrons Article

http://online.barrons.com/public/article...6.html?mod=mktw

[cpk]

What I could find on Gibraltar bankruptcy law is that taxing authorities and employees have first claim on assets, and then other "provable" debts are liquidated. Claims can only be made if they are 500 pounds or more, and only if you can prove the debt.

[AzDesertRat]

I messed that up some--I have dealt with so many bankruptcies, even oddball ones like Chapter 12, that I messed this one up bad. Even a company I worked for for filed under Chapter 11 and is now liquidating under Chapter 7.

I shall now go back into my little corner and stay quiet now. [img]/images/graemlins/blush.gif[/img]