Are they going out of business? 

I don’t think so. They appear to have many businesses stashed away that they can sell to raise money when they need it. How many businesses and what are they worth? It is impossible to tell when reading their 10K. It doesn’t name any of them. The 10K had two sentences on a recycling company that, surprise, they just turned into 70 million dollars. The short argument that this company is too complicated to value correctly is sadly right. The short argument that they won’t make payroll is fortunately wrong.

Will B.Riley Financial get bought? 

I don’t think so but with less conviction. B Riley mentioned “other ways to finance the business” when he said that he was not going to buy the company for $7. Was he referencing selling assets, spinning off the investment bank, refinancing the bonds, or selling the whole thing? I don’t think we know, but selling the whole thing would be really messy. I mean, among many other random businesses, they own a landscaping company, a woman’s fashion line, and a forensic accounting firm. Who would want to buy all of this together?

Will they generate enough cash from operations to pay off the 2026 bonds? 

I don’t think so, said with the most conviction. It is hard to tell without an actual 10K and just this estimate to work with. 180 million in losses from continuing operations scares me. I don’t know if they found every bit of decrease in goodwill they could to offset the gains from the GA sale. The great part of Berkshire Hathaway is that the random assortment of businesses they have all tend to throw off lots of cash very consistently. They don’t have burn rates  and reclamation projects like Riley appears to. I think they are going to need to come up with the cash in 2026 from financing activities. That isn’t the worst news though. B. RIley Financial is at heart an investment bank that is really good at financing activities. I just wouldn’t want to be a bond holder without knowing where the cash is coming from.

Will they pay a dividend anytime soon? 

I don’t think so. Is it possible to know what covenants Oaktree included on their loan? They said in the conference call that they can’t buy back bonds on the open market as long as the Oaktree loan is still active. It makes a lot of sense that they would be restricted from paying any kind of dividend also. I know the preferred accumulates. But I don’t really see how the dividend train is getting restarted without a bunch of cash generated from operations. I am not sure if the preferred shares will gain much traction without clarity on pending dividend payments.

Different way of looking at it?

I just had the thought that I might be thinking about this company wrong. I was thinking of them as a Berkshire type holding company that takes the cash from operations and makes prudent investments. Those investments generate more cash and the snowball then gets bigger. Maybe Riley Financial is more of a venture capital firm that owns a bunch of stuff and gets paid not from operations but when they exit the business. If that is the case, the growth in their investments is much more important than losses from operations. I don’t know.What have I missed? Where am I wrong? Let’s chat! dkallevig@gmail.com