Central Parking Finance Trust – CRLKP

One more investing idea to close out the year. And for the first time on this blog, it’s a fixed income security. Central Parking Finance Trust Convertible Preferred Securities offer a very attractive current yield and yield to maturity, plus a valuable embedded put option.

The Central Parking Finance Trust was created in 1998 to invest in junior subordinated deferrable interest convertible debentures issued by Central Parking Corporation. Despite the complicated title, these were essentially just convertible bonds with a provision for temporarily postponing interest payments if necessary. The bonds had a maturity of April 1, 2028, and were convertible into common shares of Central Parking Corporation at 0.4545 shares per $25 par value bond. To finance the purchase of this bond issue, the trust issued convertible preferred securities with substantially identical terms. These preferreds trade over-the-counter with the ticker CRLKP.

CRLKP’s current bid/ask is $19.40/$19.75. Yield-to-maturity in 2028 is a juicy 8.2%. The current yield is 6.8%, adjusting for accrued dividends. Looks like a nice rate of return. But then again, yield never exists in a vacuum. Long-term fixed income securities offer multiple ways to lose. Rising interest rates and widening credit spreads can create a lot of tears for yield-chasing investors.

However, remember the convertible part of these securities’ title? Well, Central Parking Corporation was acquired by a consortium of private equity firms lead by KKR in 2007. As a result of the transaction, the conversion rights of the trust preferred securities were canceled. From the time of the transaction until their maturity in 2028, holders instead have the ability to redeem their shares at any time for $19.18 per share. Currently, these units are the ultimate liability of SP Plus Corporation, which acquired Central Parking from its private equity owners in 2012.

This is a put option, and it dramatically decreases the risk of holding CRLKP. Interest rate risk is all but eliminated. Even a dramatic rise in yields across the curve would produce a maximum loss of 2%, the difference between CRLKP’s current price and the put strike of $19.18. Credit risk is greatly reduced, because holders can effectively choose their own maturity and put the securities back to the company at any time should SP Plus’ financial ratios begin to deteriorate.

If there’s a downside to these securities, it is definitely their illiquidity. By my calculation, only about 60,000 of these securities remain outstanding following years of redemptions by holders. Additionally, SP Plus has been in the market buying CRLKP back. SP Plus’ cost of debt is only around 4.7%, so naturally they are eager to retire these expensive securities. Anyone purchasing these securities should view the investment as long-term.

Alluvial Capital Management, LLC does not hold shares of Central Parking Finance Trust for client accounts. Alluvial may buy or sell shares of Central Parking Finance Trust at any time. 

OTCAdventures.com is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see alluvialcapital.com.

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at info@alluvialcapital.com.

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27 Responses to Central Parking Finance Trust – CRLKP

  1. Brice says:

    Just the kind of unusual idea I like from you. How in the world did you find this one?

    • otcadventures says:

      Oh, now and then I like to peruse the list of preferred stocks trading OTC. I like to take a look at the “busted” ones that trade well below par value. Typically they trade that way for good reason, but this one was different. This issue is so small and illiquid that it was priced very inefficiently. I see somebody took care of that just after my post, though!

      • Brice says:

        Interesting source for ideas. Any particular database you use?

        • otcadventures says:

          Just OTCMarkets.com’s stock screener. You can limit searches by common/preferred stock and also by price, volume and domicile information.

          • Stan Druck says:

            Still yielding 6% here at 23.5 thats ~450 basis points over 10 year treasuries which is a fattish yield considering how well these bonds interest is covered.

            Plus if they call the remaining bonds, the 1.5 point discount is a nice kicker.

  2. Matt says:

    According to their filings, the liquidation value is now $19.18, not $25 anymore. Have you looked into that?

    Also, where do you see that the company is buying these back?

    • otcadventures says:

      CRLKP may be redeemed by holders at any time for $19.18 per share, but the final maturity value is still $25.00 per share on April 1, 2028. The face value of the underlying debentures was not impaired as a result of merger activity, only the ability of holders to convert their shares into common stock.

      As for the repurchase, SP Plus’s most recent 10-Q shows $68,000 in redemptions year-to-date, or roughly 3,545 shares. The statements don’t reveal directly whether this is the company repurchasing and extinguishing this debt or whether it is holders redeeming of their own volition, but I have other sources telling me the company has been actively purchasing these.

      • tjb says:

        I have spent a lot of time researching this…I am convinced (with 94% assurance…I can not be 100% on this unfortunately) that this security will only be worth $19.18 at maturity.

        It still yields 4 or 5% at the current 22.00 price. Not bad. But not for me.

  3. Doug says:

    Great find! With a little reverse engineering I too was able to find the $19.18 conversion price in the 10-K, but in trying to validate your information, a question/opportunity occurred to me. “Is there an easier way to find a change in settlement terms?”

    For instance, if I bought the debenture, and then were I to call my broker and ask to put the shares back to the company, would my broker have a quick and easy way to verify the settlement terms like some kind of master list of convertibles and their settlement terms by CUSIP? If so, I would love to see it and look at deals which have changed terms. My guess however, is that my broker would be clueless about the terms and would (only after much cajoling) just call the transfer agent on my behalf and find out that way. However, if there is a magic book, I’d like to read it.

  4. Jimbo says:

    Where do i find the filing stating the $19.18 redeem value? Latest filing i see is from 1998? Please let me know what i am missing.

    • otcadventures says:

      You have to look at the filings of the successor company, SP Plus. Here’s the 10-K. http://www.sec.gov/Archives/edgar/data/1059262/000104746915001787/a2223355z10-k.htm

      On page 94 it states “The Company acquired Subordinated Convertible Debentures (“Convertible Debentures”) as a result of the acquisition of Central. The subordinated debenture holders have the right to redeem the Convertible Debentures for $19.18 cash per share upon their stated maturity (April 1, 2028) or upon acceleration or earlier repayment of the Convertible Debentures. There were no redemptions during the years ended December 31, 2014 and 2013. The approximate redemption value of the Convertible Debentures outstanding at December 31, 2014 and December 31, 2013 is $1,236 and $1,254.”

      Note this refers to redemptions by holders. The company must still pay out $25 per share on April 1, 2028 to holders who do not redeem their shares earlier.

  5. Adam says:

    Are they currently paying dividends or have they been accruing?

  6. eredd says:

    What is your read on the credit quality of SP Plus?

  7. Marty says:

    This is such an interesting find. What filings’s did you use to research this besides the merger documents?

  8. rtwer says:

    They should just call this one and get it over with…

  9. rtwer says:

    Just got my fat quarterly interest payments…delicious!

  10. rtwer says:

    Ebitda covered interest 5X here?

  11. john dough says:

    Third Avenue on SP+/Central Parking

    SP Plus

    After merging with Central Parking in 2013, effectively doubling its size, SP Plus (NASDAQ:SP) (“SP”) is now the largest parking company in the U.S. In its main business, which contributes about 72% of total EBITDA, SP Plus manages 3,900 parking facilities encompassing some 2 million parking spaces in 346 cities around the country. Its clients include property owners and institutions such as municipalities, corporations, hotels, hospitals and universities. The company earns fees based on its general parking and labor management expertise. The revenue base is very stable because most of the contracts are independent of volume. SP leases about 20% of the garages and assumes all business risks. In its corporate name, the word “Plus” refers to related services like managing airport parking and

    We like this company because of its cash flow stability, consolidation opportunities for stronger players, and economies of scale. Some 90% of contracts are renewed each year. Since the company collects money from parkers upfront and keeps its share before submitting the remaining to clients, the business doesn’t require working capital. While it is the largest player, SP’s market share is only about 10%, which leaves plenty of opportunity for growth through mergers and acquisitions. Being larger helps establish brand names and also offers advantages on schedule optimization and purchases.

    We are particularly interested in SP at this time because management has completed the merger integration and now has started to focus on growth and improving margins and cash flows. Based on our estimate, we think the stock is worth at least $30 a share, with potential to be higher as management builds out its franchise.

  12. Peter Cundill says:

    Wonder if the company is one buying those bonds

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