Harbinger Group Inc, Spectrum Brands, and Philip Falcone’s next LightSquared
I really have to say the more I look into this the more it
looks to me like Falcone got his hand caught in the cookie jar. In this report I will highlight some fillings
and market assumptions I find to be a problem.
I have put in bold and underlined the relevant points in the paragraphs
to save time.
I suggest you read my first write up on HGI, SPB, and
F&G first.
I’ll jump back and forth but a couple highlights scattered
within:
- A fully disclosed rigged game; insiders have absolute control, motives counter to shareholders, almost zero fiduciary duty owed to equity holders, players with history of self dealing, and the comical disclosure about destroying documents.
- What could/will start the domino affect and lead to collapse of house of cards.
- Is Falcone to Fidelity and Guaranty Life like Jon Corzine was to MF Global?
Harbinger Group Inc urgently needs to be reclassified:
Its outrageous the regulators have allowed Falcone to get
away with running this as a “diversified holding company". This has all the markings of another MF Global
and regulators should never have allowed it to get near this big.
From Fillings,
Investment Act:
We may suffer adverse
consequences if we are deemed an investment company under the Investment
Company Act and we may be required to incur significant costs to avoid
investment company status and our activities may be restricted.
We believe that we are not an
investment company under the Investment Company Act of 1940 (the “Investment
Company Act”) and we intend to continue to make acquisitions and other
investments in a manner so as not to be an investment company. The Investment
Company Act contains substantive legal requirements that regulate the manner in
which investment companies are permitted to conduct their business activities.
If the SEC or a court were to disagree with us, we could be required to
register as an investment company. This would negatively affect our ability to
consummate an acquisition of an operating company, subject us to disclosure and
accounting guidance geared toward investment, rather than operating, companies;
limit our ability to borrow money, issue options, issue multiple classes of
stock and debt, and engage in transactions with affiliates; and require us to
undertake significant costs and expenses to meet the disclosure and regulatory
requirements to which we would be subject as a registered investment company.
In order not to be regulated as an
investment company under the Investment Company Act, unless we can qualify for
an exemption, we must ensure that we are engaged primarily in a business other
than investing, reinvesting, owning, holding or trading in securities (as
defined in the Investment Company Act) and that we do not own or acquire
“investment securities” having a value exceeding 40% of the value of our total
assets (exclusive of U.S. government securities and cash items) on an
unconsolidated basis. To ensure that majority-owned investments, such as
Spectrum Brands Holdings, do not become categorized as “investment securities,”
we may need to make additional investments in these subsidiaries to offset any
dilution of our interest that would otherwise cause such a subsidiary to cease
to be majority-owned. We may also need to forego acquisitions that we would
otherwise make or retain or dispose of investments that we might otherwise sell
or hold.
Like Daniel Drew in
the old Erie Railroad...
The Harbinger Parties hold
a majority of our outstanding common stock and have interests which may
conflict with interests of our other stockholders and the holders of the notes.
As a result of this ownership, we are a “controlled company” within the meaning
of the NYSE rules and are exempt from certain corporate governance
requirements.
The Harbinger Parties beneficially
own shares of our outstanding common stock that collectively constitute a
substantial majority of our total voting power. Because of this, the Harbinger
Parties, subject to the rights of the holders of Preferred Stock, exercise a
controlling influence over our business and affairs and have the power to determine all matters submitted to a vote of our
stockholders, including the election of directors, the removal of directors,
and approval of significant corporate transactions such as amendments to our
amended and restated certificate of incorporation, mergers and the sale of all
or substantially all of our assets, subject to the consent and board
representation rights of our Preferred Stock. Moreover, a majority
of the members of our Board were nominated by and are affiliated with or are or
were previously employed by the Harbinger Parties or their affiliates.
So there would be no
problem with say, a director being short the stock?
Our officers, directors,
stockholders and their respective affiliates may have a pecuniary interest in
certain transactions in which we are involved, and may also compete with us.
We have not adopted a policy that expressly prohibits our directors,
officers, stockholders or affiliates from having a direct or indirect pecuniary
interest in any investment to be acquired or disposed of by us or in any
transaction to which we are a party or have an interest. Nor do we have a
policy that expressly prohibits any such persons from engaging for their own
account in business activities of the types conducted by us. We have
engaged in transactions in which such persons have an interest and, subject to
the terms of the indenture and other applicable covenants in other financing
arrangements or other agreements, may in the future enter into additional
transactions in which such persons have an interest. In addition, such parties
may have an interest in certain transactions such as strategic partnerships or
joint ventures in which we are involved, and may also compete with us.
(For
a better idea of how this would work I suggest you read Perry Corp and OTC
Swaps) http://www.sec.gov/litigation/admin/2009/34-60351.pdf
Here is a filling
from 2006 with David Maura (Current Board of Director of Spectrum Brands),
where he’s a consultant for a Harbinger fund which is short the company he’s
on the board of. No problem with
conflict of interest?
2006-06-12
Mr. Maura is a consultant to the Harbinger Capital Partners Master
Fund I, Ltd. (the "Master Fund"). He serves as a director of Salton,
Inc. ("Salton") as the designee of the Master Fund. The Master Fund
owns Series A Voting Convertible Preferred Stock of Salton that is convertible
into 2,647,067 shares of common stock. As of the date hereof, the Master Fund
also has a short position of 709,560 shares of Salton common stock. Mr. Maura
disclaims beneficial ownership of the Salton common stock owned by the Master
Fund.
Here was a case brought against Spectrum in 2005 for inflating
earnings by means of acquisitions. The
case was dismissed, which is a shame because it’s exactly what they are doing
today.
Chart from the filling showing the insiders dumping on the bullshit revenue claims.
Another director selling stock at the high was Kent J Hussey
who later became CEO of Spectrum from 2007-2010 http://www.sec.gov
World Famous CDO manager &
Harbinger
This really
caught my attention because I’ve written about this guy before. Not only has this Donald J Puglisi been
involved with a bunch of Chinese frauds but he was also involved with many of
the worst CDO's back during the housing collapse. Looks like he’s handling 3 of Falcone's funds/SPV’s. . My
guess is that these are some special purpose vehicle used by Falcone to create
short exposure, but I have no idea nor if they are related to HGI, F&G Life
etc. Interesting nonetheless.
Name of General Partner, Manager, Trustee, or Director
DONALD J. PUGLISI
HARBINGER CLASS PE HOLDINGS (U.S.) TRUST
HARBINGER CLASS LS HOLDINGS I (U.S.) TRUST
HARBINGER CLASS LS HOLDINGS II (U.S.) TRUST
Here is a write up I did on him.
Harbinger Capital Investment Adviser Disclosure-
When I read the
following I was imminently reminded of a MF Global disclosure about Corzine and
his fiduciary duties to MF.
Our officers and directors may
become aware of business opportunities which may be appropriate for
presentation to us as well as the other entities with which they are or may be
affiliated. Due to our officers’ and directors’ existing affiliations
with other entities, they may have fiduciary obligations to present potential
business opportunities to those entities in addition to presenting them to us,
which could cause additional conflicts of interest. For instance,
Messrs. Falcone and Asali may be required to present investment opportunities
to the Harbinger Parties. Accordingly, they may have conflicts of interest
in determining to which entity a particular business opportunity should be
presented. To the extent that our officers and directors identify business
combination opportunities that may be suitable for entities to which they
have pre-existing fiduciary obligations, or are presented with such
opportunities in their capacities as fiduciaries to such entities, they may be
required to honor their pre-existing fiduciary obligations to such entities. Accordingly,
they may not present business combination opportunities to us that otherwise
may be attractive to such entities unless the other entities have declined to
accept such opportunities. Although the Harbinger Parties have
agreed, pursuant to the terms of a letter agreement with certain holders of our
Preferred Stock, to, subject to certain exceptions, present to us certain
business opportunities in the consumer product, insurance and financial
products, agriculture, power generation and water and mineral resources
industries, we cannot assure you that the terms of this agreement will be
enforced because we are not a party to this agreement and have no ability to
enforce its terms.
Compare that to the 2nd
paragraph located here.
I can’t seem to think of a reason for
the disclosure below unless it was to hide something.
Section 6.10 Maintenance of Books and
Records; Cooperation.
...”Such records may be sought
under this Section 6.10 for any reasonable purpose, including to the extent
reasonably required in connection with the audit, accounting, financial
reporting, tax, litigation, federal, foreign, or state securities disclosure or
other similar needs of the party seeking such records. Notwithstanding the foregoing, any and all such records may be
destroyed by a party if such destroying party sends to the other party hereto
written notice of its intent to destroy such records, specifying in reasonable
detail the contents of the records to be destroyed; such records may then be
destroyed after the 60th day following such notice unless the other party
hereto notifies the destroying party that such other party desires to obtain
possession of such records, in which event the destroying party at requesting
party’s expense shall transfer the records to such requesting party and such
requesting party shall pay all reasonable expenses of the destroying party in
connection therewith.”
“Purchaser shall use commercially
reasonable efforts (at Purchaser’s expense) as soon as is reasonably practical
following the applicable Closing Date, to delete all such software from any of
the Equipment on which it is installed, except as otherwise provided in the
Transition Services Agreement.” http://www.sec.gov
Teetering on the Edge of Death:
Subsidiary F&G Life insurance & Increase in Interest
Rates
A rise in interest rates, in the
absence of other countervailing changes, will increase the net unrealized loss
position of F&G Holdings’ investment portfolio and, if long-term interest
rates rise dramatically within a six- to twelve-month time period, certain of
F&G Holdings’ products may be exposed to disintermediation risk. Disintermediation risk refers to the
risk that policyholders may surrender their contracts in a rising interest rate
environment, requiring F&G Holdings to liquidate assets in an unrealized
loss position.
This isn’t going to be good for annuity sales!
Change in Tax Policy
Beginning in 2013, distributions
from non-qualified annuity policies will be considered “investment income” for
purposes of the newly enacted Medicare tax on investment income contained in
the Health Care and Education Reconciliation Act of 2010. As a result, in certain
circumstances a 3.8% tax (“Medicare Tax”) may be applied to some or all of the
taxable portions of distributions from non-qualified annuities to individuals
whose income exceeds certain threshold amounts. This new tax may have a
material adverse effect on F&G Holdings’ ability to sell non-qualified
annuities to individuals whose income exceeds these threshold amounts and could
accelerate withdrawals due to additional tax.
Credit Agencies: I do not understand how shortening duration
could be seen as a positive. How much
lower are rates going to go 5 years into an easy money cycle?
From Credit Agency A.M
Best,
A.M. Best also notes the
substantial progress that has been made in de-risking FGL's investment
portfolio while also shortening the duration and strengthening its asset
liability management profile. With the improvement in asset quality, the market
value of FGL's investment portfolio has increased to the point where it was in
a net unrealized gain position of $939 million as of June 30, 2012.
To affirm the rating of Fidelity & Guaranty Life is so outrageous
it’s funny. With a piece of garbage like
HGI acting as the backing behind FG&L, and “capital strengthening” due to things
like “bargain purchases” and other accounting gimmicks these analysts must be
in outer space.
FITCH
Fri, Oct 19
2012 Fitch Ratings has affirmed the 'B'
Issuer Default Rating (IDR) and 'B/RR4' debt ratings of Harbinger Group Inc.
(HRG), with a Stable Outlook.--$500
million 10.625% senior secured notes at 'B/RR4'
TEXT-Fitch
affirms Harbinger Group ratings with outlook stable
TEXT-Fitch
affirms Fidelity & Guaranty Life Insurance Co
How does a “recently formed” Bermuda-based reinsurance
company all of a sudden is reinsuring 3 billion in obligations? I can’t find a single thing on FrontStreet anywhere
nor how much capital they have. I
emailed the goofballs over there and they have not returned my emails as of
yet.
Harbinger F and G
Harbinger F and G is the holding
company for our recently acquired annuity and life insurance businesses and our
proposed reinsurance business. F and G Holdings, through its insurance
subsidiaries, is a provider of annuity and life insurance products in the U.S.,
with approximately 790,000 policy holders in the U.S. and a distribution
network of approximately 300 independent marketing organizations (“IMOs”)
representing approximately 25,000 agents nationwide as of March 31,
2011. At April 3, 2011, the pro forma carrying value of F and G Holdings’
investment portfolio was approximately $17.5 billion.
Front Street, an indirect wholly
owned subsidiary of Harbinger F&G, is a recently formed Bermuda-based
reinsurer, which has not engaged in any significant business to date. As
contemplated by the terms of the F&G Stock Purchase Agreement, on
May 19, 2011, a special committee of our Board (the “Special Committee”),
comprised of independent directors under the rules of the NYSE, unanimously
recommended to the Board for approval, (i) a reinsurance agreement (the
“Reinsurance Agreement”) to be
entered into by Front Street and FGL Insurance, pursuant to which Front Street
would reinsure up to $3 billion of insurance obligations under annuity
contracts of FGL and (ii) an
investment management agreement (the “Investment Management Agreement”) to be
entered into by Front Street and Harbinger Capital Partners II LP (“HCP”),
an affiliate of the Harbinger Parties, pursuant to which HCP would be appointed
as the investment manager of up to $1 billion of assets securing Front
Street’s reinsurance obligations under the Reinsurance Agreement, which
assets will be deposited in a reinsurance trust account for the benefit of FGL
Insurance pursuant to a trust agreement (the “Trust Agreement”). On
May 19, 2011, our Board approved the Reinsurance Agreement, the Investment
Management Agreement and the Trust Agreement (collectively, such agreements and
the transactions contemplated thereby, the “Front Street Reinsurance Transaction”). http://google.brand.edgar-online.com
Okay we have Philip Falcone handling the money, pamphlets baiting
people in under the premise THEY CAN’T LOSE....... I wonder how this is going
to turn out.
Selling Fish food and inflated stock certificates is one
thing but I’m completely baffled with how in the world the insurance regulators
signed off on Falcone buying a life insurance division with 15 billion in
assets and liabilities, AND THEN LETTING HIM ACT AS INVESTMETN ADVISOR.
================================================
Harbinger Group Inc –A Disease
Harbinger Group Inc or “HGI” (Symbol HRG), is shameless in its growing
reliance on debt financed acquisitions as a means of staying alive. Using the same accounting schemes it used 5
years ago and got busted for (although acquitted), one really has to question
the audacity of these corporate bandits.
“HRG uses the value of its
portfolio investments as collateral for its own debt. HRG has pledged its Spectrum
shares as part of the collateral for its 10.625%, $500 million notes.”
“To secure funds, Harbinger Capital Partners Master Fund I, Ltd., which
owns 50.9% of HRG on a fully diluted basis, has also pledged all of its shares
in HRG together with securities of other issuers. If there was a foreclosure or
sale of the HRG shares pledged as collateral, it would be a change of control
of for both HRG and Spectrum. The change would not only accelerate all of
Spectrum's and HRG's debt and preferred stock, but would cause Spectrum to be
unable to use its net operating losses, which could negatively affect cash
flows. Spectrum would
need a waiver on its term loan and revolver, and might also need a waiver on
its notes, as it is required to offer to repurchase those instruments.”
Harbinger Group Inc
is the sickest in the group:
Subordinated Debt:
HRG's debt and preferred stock are
structurally subordinated to the claims on cash flows and assets from existing
and future debt holders at SPB and F&G Life. http://www.reuters.com
Here is a list of its
debt issues incase your interested,
It’s passed the point
of turning back, the collapse is near.
The question I have is who’s holding the bag when this turkey bites the
dust?
Our ability to dispose of
equity interests we hold may be limited by restrictive stockholder agreements
and by the federal securities laws.
Our ability to make payments on
our financial obligations will depend upon the future performance of our
operating subsidiaries and their ability to generate cash flow in the future,
which are subject to general economic, industry, financial, competitive,
legislative, regulatory and other factors that are beyond our control. We
cannot assure you that we will generate sufficient cash flow from our operating
subsidiaries, or that future borrowings will be available to us, in an amount
sufficient to enable us to pay our financial obligations or to fund our other
liquidity needs. If the cash flow from our operating subsidiaries is
insufficient, we may take actions, such as delaying or reducing investments or
acquisitions, attempting to restructure or refinance our financial obligations
prior to maturity, selling assets or operations or seeking additional equity
capital to supplement cash flow. However, we may be unable to take any of these
actions on commercially reasonable terms, or at all.
In addition, the shares of
Spectrum Brands Holdings we received in the Spectrum Brands Acquisition and the
shares of F&G Holdings we acquired in the Fidelity & Guaranty
Acquisition are not registered under the Securities Act and are, and any other
securities we acquire may be, restricted securities under the Securities Act.
Our ability to sell such securities could be limited to sales pursuant to:
(i) an effective registration statement under the Securities Act covering
the resale of those securities, (ii) Rule 144 under the Securities
Act, which, among other things, requires a specified holding period and limits
the manner and volume of sales, or (iii) another applicable exemption
under the Securities Act. The inability to efficiently sell restricted
securities when desired or necessary may have a material adverse effect on our
financial condition and liquidity, which could adversely affect our ability to
service our debt.
“Financing covenants could adversely affect our financial health and
prevent us from fulfilling our obligations.”
We have a significant amount of
indebtedness. As of April 3, 2011, on a pro forma basis our total outstanding
indebtedness (excluding the indebtedness of our subsidiaries, but including the
initial notes) was $500 million. As of April 3, 2011, the total liabilities of
Spectrum Brands Holdings were approximately $2.8 billion, including trade
payables. As of March 31, 2011, the total liabilities of F&G Holdings were
approximately $19.2 billion, including approximately $14.8 billion in annuity contract
holder funds and approximately $3.8 billion in future policy benefits. Our and
our directly held subsidiaries’ significant indebtedness and other financing
arrangements could have material consequences.
Any of these risks could impact
our ability to fund our operations or limit our ability to expand our business,
which could have a material adverse effect on our business, financial condition,
liquidity and results of operations.
They’ll lie up to the
very end, just like last time.
November 11, 2008 we company
pumping EBITDA...
"For the full year,
revenue grew 5% due mainly to foreign exchange. Sales were up 1% excluding
foreign exchange. Consolidated adjusted EBITDA was $281.3 million for the year,
up slightly over last year. Of note, our largest business unit, global
batteries and personal care exceeded our expectations for annual adjusted
EBITDA delivering year-over-year growth of 12.4% for fiscal 2008."
3 Months Later....
Spectrum Brands Files for BK in
Febuary 2009
Spectrum Brand's old common stock
has been extinguished and no financial distribution will be made to holders of
the old common stock.
Well thats all I got in me for now. There is so much here its insane. I plan on getting into the merger with
Stanley Black and Decker next. Feel free
to email me with any questions.
Donny Shekels
Ihs.research@mail.ru
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