Silver Ring Value Partners, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. The portfolio ended the quarter at a very attractive Price to Base Case Value ratio of 56%, which makes me excited about its future prospects. At the end of Q3 2021, the portfolio was very attractively priced, with the Price to Base Case value ratio at 56%. The portfolio had 15 investments plus hedges, cash at 1%, and option-adjusted net exposure at 68% at the end of the quarter. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Silver Ring Value Partners, in its Q3 2021 investor letter, mentioned Garrett Motion Inc. (NYSE: GTX) and discussed its stance on the firm. Garrett Motion Inc. is a Switzerland-based automobile technology provider company with a $502.2 million market capitalization. GTX delivered a 74.27% return since the beginning of the year, while its 12-month returns are up by 66.74%. The stock closed at $7.72 per share on December 28, 2021.
Here is what Silver Ring Value Partners has to say about Garrett Motion Inc. in its Q3 2021 investor letter:
“Garrett Motion is a post-bankruptcy special situation trading at ~ 6x EPS. The company is a leading maker of turbochargers for cars, and was spun off from Honeywell in late 2018. At the time of the
spinoff, the company was saddled with Honeywell’s legacy asbestos liabilities, which is why I passed on it at the time after doing some initial work.During 2020 the company filed for Chapter 11 bankruptcy in order to restructure its asbestos obligations to Honeywell. The result was that after emergence from bankruptcy, the asbestos liabilities were capped to a finite amount. Skipping the technicalities, the company will now have the ability to pay off Honeywell and be done with asbestos with the cash it currently has on its balance sheet.
The remaining capital structure is comprised of a term loan that is ~ 2x EBITDA, a Series A preferred stock and equity. The series A preferred should convert to equity on a 1-for-1 basis in Spring 2023 if the company is performing well. It’s an 11% preferred with $5.25 face value, with the dividend currently being deferred at the company’s discretion. Again, skipping some nuances of the preferred dividend mechanics, this should mean that in the scenario where the company is doing fine, in 2023 holders of the preferred should get 1 share of the common plus at least $1.16 in dividends. The preferred, being more senior than equity, of course has better downside protection in certain negative scenarios than the common, especially since there is relatively little debt ahead of it in seniority.
So why is Garrett Motion so cheap?…” (Click here to see the full text)
Photo by Danny Sleeuwenhoek on Unsplash
Based on our calculations, Garrett Motion Inc. (NYSE: GTX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GTX was in 21 hedge fund portfolios at the end of the third quarter of 2021, compared to 17 funds in the previous quarter. Garrett Motion Inc. (NYSE: GTX) delivered a 4.18% return in the past 3 months.
Just this month, we also shared another hedge fund’s views on GTX in another article. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q3 page.
Disclosure: None. This article is originally published at Insider Monkey.
