Daily Archives: February 26, 2017

During a meeting with big investors and analysts in New York City earlier this month, TCF Financial CEO Craig Dahl and his chief financial officer were peppered with questions about a national auto-lending portfolio that underperformed in the fourth quarter and that amounts to less than a sixth of TCF's revenue mix.

At one point, CFO Brian Maas asked if they wanted to discuss the 85 percent of business that performed well.

"The auto business is an issue," said Christopher McGratty of Keefe, Bruyette & Woods in New York last week. "It has been a growing source of their business. TCF also has the [January] lawsuit brought by the Consumer Financial Protection Bureau. [Investors] are uncertain about their future. And that's why the stock hasn't worked.

"Their old business model got upended. And Craig was instrumental in growing new businesses the last few years. What's challenging is that some of these markets can move quickly against them."

Dahl, 62, a veteran commercial lender and executive at TCF since 1998, acknowledges there is work to do.

TCF's stock price has traded mostly between $12 and $18 per share since the Great Recession of 2007-08. That's far short of the $20 to $28 range of the several years before when TCF was considered acquisition bait by larger banks as it raked in profits from fees and overdraft charges that were limited by regulators after the recession.

Former CEO Bill Cooper, who died of cancer earlier this month at 73, was the leader at TCF since arriving in 1985. He pulled off a widely admired turnaround of the failing S&L, turning it into Minnesota's third largest commercial bank. Dahl succeeded Cooper as CEO on Jan. 1, 2016 as TCF's performance improved.

Last year, TCF posted a 6.6 percent rise in earnings to $212 million on a nearly 5 percent increase in revenue to $1.4 billion. As revenue grew in recent years, Dahl restrained costs by closing about 100 of what was once 440 branches since 2012. He invested in technology to bring TCF's lagging consumer-online services to the level of competitors such as Wells Fargo, his previous employer. And Dahl grew consumer and commercial lending.

Since 2014, TCF was able to increase low-cost deposits by $5 billion, the consumer checking and other accounts it uses to finance higher-yielding loans, mortgages and credit cards.

That long-term progress has led some analysts, such as Jared Shaw of Wells Fargo Securities in New York to project the bank will "outperform" its midsize peer group and achieve a stock price of $19 to $20 this year. It closed at $17.51 Friday.

Dahl is a collaborative leader who samples opinion among a larger group before making decisions. He also has a track record of starting or running commercial lending and leasing business that have grown profitably. As CEO, he also has learned to take a longer view.

"Running the bank for today is what I was doing driving for performance in all these businesses," Dahl said. "As I moved into this [CEO] chair, it's become What are we going to do tomorrow? What are the things we are not doing today? If I'm not thinking about tomorrow who is? That's been my biggest change."

Dahl, an International Falls, Minn., native who played hockey while earning a bachelor's degree at Princeton, was nicknamed "Coach."

While finishing his degree at Princeton after his hockey eligibility expired, Dahl was asked to coach the first women's hockey team at the school. That mention caused him to smile and recall how much fun it was to coach a group of bright young athletes, something he later did as a youth coach for 20 years in the Twin Cities.

Dahl has surrounded himself with complementary players. Half of his six-person senior management team came up with Dahl through the leasing businesses. He's balanced the team with three outsiders, including new managers who joined TCF from Target, Wells Fargo and PNC Financial.

Dahl still wrestles with issues from the Cooper era, who could have sold the bank at a premium before the recession, and leaned heavily on consumer overdrafts and electronic fees.

They were curtailed by the Federal Reserve and Congress after the near-failure of the banking industry and the resultant taxpayer bailout of 2008-10.

Mairs & Power, the St. Paul investment firm that was one of TCF's largest shareholders for years, sold out its position a few years ago amid uncertainty as TCF struggled to replace lost fee revenue with the national auto-leasing business and commercial lending.

TCF's performance and stock price has improved since 2015. Dahl has proved that TCF could build revenue using a deposit-funding base that's cheaper than those of most his midmarket peer group while gaining economies by closing branches and replacing them with ATMs.

Dahl's latest challenge is a lawsuit brought in January by the federal Consumer Finance Protection Bureau (CFPB), alleging TCF since 2010 has misled customers into a service that costs a $35 fee to cover each overdraft on their accounts.

"We have to conclude that lawsuit," said Dahl, who knows it concerns investors. "We feel we're on the right side of the law."

TCF last week filed its response in federal court as part of a motion asking a federal judge to dismiss the case.

And TCF is not for sale, Dahl said.

"I wouldn't be investing if I had been told [by the board], to sell the bank," he said. "We have a clear strategy. Our performance has moved up the continuum among our 50-bank peer group."

Cooper moved TCF's longtime headquarters 20 years ago from Minneapolis. The former Republican Party chairman disliked Minneapolis DFL politicians.

After TCF's lease expired downtown in the former TCF building in 2015, he moved 1,100 employees to a new campus in Plymouth.

Dahl said last week after the Wayzata lease expires, he probably will move a couple hundred headquarters employees to Plymouth or the commercial lending offices in Minnetonka.

Dahl, unlike Cooper, avoids public politics. The one-time young DFLer from International Falls, who played on a state championship hockey team in 1972, said he's a political independent.

"I like to stick to business," Dahl said.

Originally posted here:

TCF Financial touts progress, but investors remain cautious - Minneapolis Star Tribune

A few days ago, the management team at Civeo Corp. (NYSE:CVEO) announced that it had finalized its most recent credit facility redetermination. Seeing as how I own shares in Civeo, I like to keep up-to-date with the firm's progress and I know that you, my readers, like to as well (at least those of you who follow and/or own it). As such, I determined that it would be a wise idea for me to provide an update on the company and give my thoughts on what it all means for the business moving forward.

A touch on their earnings

Seeing as how Civeo's earnings just came out the other day, you may be asking why the focus on this article is not on that news as opposed to (or in addition to) what I'm writing about. Simply put, management provided preliminary guidance on financial results for the fourth fiscal quarter of last year, as well as provided guidance regarding the company's 2017 sales and other financial data at an earlier time.

I wrote about it in this article but the gist of it is that management's forecast for 2016's fourth quarter revenue was in the range of $89 million to $92 million (actual result was $90.92 million) and for EBITDA it came out to $16 million to $18 million (actual result was $17.7 million). For 2017, sales guidance is still as it was at between $337 million and $353 million, while EBITDA guidance is still calling for a range of between $60 million and $65 million. In essence, nothing really changed too much from what was forecast.

A look at management's newest move

One problem with Civeo is that it has a meaningful amount of credit facility debt that can be cut below their borrowings if lenders elect to force such a situation. So long as this does not happen, the firm is fine, but if lenders ever become scared and this number gets pulled down too low, the end result could make shareholders quite unhappy since it could result in the business going under in a worst-case scenario or could force additional share offerings and/or require it to take on debt at materially-higher interest rates in order to account for the difference.

*Taken from Civeo

Fortunately, according to management, the firm just went through its most recent redetermination and struck a deal with lenders wherein it had seen its lender commitment drop by $75 million from $350 million to $275 million. In the image above, you can see what the picture looked like before the deal was struck (no similar table has been provided for the post-agreement). This is particularly interesting because, according to their existing facilities agreement, Civeo has to pay a small amount of interest on any proceeds not currently being used (this is standard for credit facilities and I don't think I have ever seen one that didn't have this kind of stipulation).

*Taken from Civeo

I will get to the other aspect of the deal in a moment but the reason why this is important is that, based on the company's current leverage ratio, which I estimate, using its projected 2017 EBITDA of $60 million to $65 million, is between 4.23 and 4.58. As you can see in the image above, this means that on any undrawn amount, Civeo must pay between 0.90% per year and 1.01% per year. By reducing this number by $75 million, management is reducing interest expense, keeping all else the same, by between $0.68 million and $0.76 million per year.

*Taken from Civeo

Every little bit helps but if this were all I was writing on, I wouldn't say it's enough to warrant your attention. What does warrant it, however, is that, in exchange for management striking this deal, they also were able to change their allowable leverage ratios for the better. In the image above, you can see what their leverage ratios were prior to their agreement and in the image below, you can see their current allowable leverage ratios post-deal. At first glance, this may not seem like much but it could make all the difference in Civeo's long-term survival.

*Taken from Civeo

Let's take, for example, the end of 2017. Under their prior deal, the firm would be allowed, assuming its EBITDA estimates are correct, to hold debt of between $300 million and $325 million. Now that number has increased to between $351 million and $380.25 million. For the third quarter of 2018 (the last number shown on the original table), the disparity is even larger, with management only allowed to have debt of between $210 million and $227.5 million compared to the same $351 million to $380.25 million range cited above.

In its press release on this development, management said that one benefit to this change in their agreement is that the company has greater financial flexibility. In detailing this, they noted specifically that it could allow them to engage in acquisitions, a move that I would applaud if management can find a suitable prospect. One downside, though, is that if their leverage ratio is at 5.50 or higher, they will be forced to pay an interest rate that is 0.5% higher than what they are paying today, but if the firm does decide to buy up something, then it's unlikely to be an asset or business where such a small increase in the interest rate would have a material impact on the firm (otherwise, they shouldn't be buying anything).

Takeaway

Based on the data provided, it looks as though management continues to make some nice progress given Civeo's circumstances. Even though I did not like their public share offering earlier this year, I do like to see improved financial flexibility, especially if it can lead to an acquisition, and I also enjoy seeing interest expense falling, even if the move is immaterial in and of itself.

Disclosure: I am/we are long CVEO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The rest is here:

Civeo's Making Nice Progress - Seeking Alpha

MILAN, Italy Given the massive challenge of taking up the reins of a designer as unique and adored as Consuelo Castiglioni, Francesco Risso was always going to draw down a forensic level of scrutiny with his womenswear debut at Marni.

The staging seemed to acknowledge that. It hedged its bets. Marnis showspace on Viale Umbria was reconfigured as a shadowy building site, with looming scaffolding and bubble-wrapped plywood benches for seating. A neon sign flashing WORK IN PROGRESS would scarcely have looked out of place. And it would certainly have been an appropriate cue for the collection Rossi presented.

It was heavy on concept, which was to be expected after Rissos seven years working with Miuccia Prada. She is a genius at using abstract ideas to add substance to collections when they most need it. Rissos shtick was, however, obtuse to a fault. He called his collection Be1ngs, with an emphasis on the singular in the plural. Got that? No, me neither. An individual being in the act of creating its own reality? Still no clearer.

But what was easier to wrap ones head around was the influence of the women in Rissos life. He was talking personal, I was thinking professional. Castiglioni, liberated from stereotypes, Prada, free of conventional notions of beauty and ugliness. Rissos collection was provocative in the way it dispensed with prettiness and proportion.

There was an element of perverse discomfort in high collars and ill-fitting bustiers. Or maybe it was a deliberate naivet. Risso talked about a special wool that had been scratched till it pilled. Ghastly! Or a silk that mimicked the plastic bubblewrap on our benches. One of my obsessions is waxed cotton, he said. Padded and layered, so the pieces are three-dimensional, sculptural but still very light.

There was something fiercely utilitarian about that stuff. Some of it was tied at the waist with string. The shaggy, matted coats could have been rescued from a recycling depot. And those hats! Oy! They looked like sou-westers clumped with sheepskin.

And yet, and yet you could step back from the oddness (match the hats to the clunky nailhead-heeled boots) and take it all as a deliberate statement of dissociation. On the soundtrack, Brit avant-gardist Robert Wyatt crooned At Last I am Free. That song was originally written and recorded by Chic, which gave it a certain untouchability in the grand scheme of artists covering other artists. But Wyatt audaciously overlooked any reservations to make his own gorgeous version. Is that what we take away for Rissos debut at Marni? Minus the gorgeousness, this time.

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A Work in Progress at Marni - The Business of Fashion