A few things have happened recently, which necessitate a posting.

Distribution Now (DNOW): I got stopped out of my position a few days ago at 20.35.  I was ok with this, because it was using up far too much margin in my spread betting account and my strategy is to get to a portfolio of large cap stocks, which only require 5-10% margin.  I got out with a small profit, when earlier in the year, it was maybe 30-40% down, and I may end up owning it again.

Alternative Asset Opportunities (TLI):  In their shareholder update of 23^rd June, TLI announced that they were in discussions around a sale of the portfolio.  This was not surprising, although mildly disappointing.  I think the shareholder base of TLI is probably minded for an exit of assets that have disappointed over the years and recent cost of insurance increases and a dearth of maturities have probably strengthened that resolve.  It’s really been a perfect storm for TLI, to the end that it was trading c20% below a NAV that should still be expected to grow c10% over time.

My fear was that the board, who have steered the ship badly over the years, would deliver one final blow to the long suffering shareholder by negotiating a bad deal that destroyed value.  In the event, that doesn’t seem to have been the case.  They will sell 71 of 80 policies still remaining for $40mln cash (7.1% premium to book), which is approximately the value of the whole company as at the announcement date.  This cash will be distributed reasonably quickly, with 9 policies remaining to be disposed of.  They are the most toxic policies, with cost of insurance increases expected to be applied, and so will be trickier to get rid of.

As at today, the numbers look like:

	Pence per Share
Value of sale	41
Cash on Hand	7.2
Winding Down Cost	-0.6
Cost of bid	-0.6
Remaining policies	0-6
	47-53p

That represents anything from a 14 – 29% uplift from where the shares were trading prior to the announcement and a final return to the shareholder of approximately NAV. 

While my preference would have been for the portfolio have been held to maturity, at least the board have managed to sell assets at a premium to NAV, and there is no value destroyed.  There are some further positive aspects.  First, it allows me to rotate into other assets.  Emergent Capital is trading extremely cheaply again, perhaps because of fears over LTV breaches as assets are written down because of cost of insurance increases.  I will have to look into that  Second, it has affirmed that there are buyers out there for portfolios of secondary life insurance policies and they place a value on these assets of maybe 10-12% IRR, which gives comfort as to the value embedded into Emergent’s portfolio.

However, I can’t just rotate all of my cash from TLI into Emergent, because those life insurance assets are meant to act as collateral against my leveraged spread bet positions.  I was reasonably comfortable owning TLI because I knew that it would liquidate over time and that there would be large cash returns.  While it is the case that I think Emergent is significantly undervalued, there can be no assurance of what the share price will do in the medium term, and so in times of equity market distress, it may well also fall.  So I suspect that I will replace TLI with Emergent and a portfolio of liquidations, to try and ensure that whenever I require cash it will be available.