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    Saturday, September 27, 2008


    A hug for AHUG (Allco Hybrid Investment Trust Alleasing Hybrids)

    I wrote about the AHUG securities here in my post about general Allco securities. I indicated that they were worth about 60c on the dollar in the absence of the Allco guarantee. After Allco confirmed they would not honor the guarantee I estimated a value of closer to 50c on the dollar for AHUG based on an Alleasing sale between 120-180M and an appropriate portion of Allco's Mezzanine money to be kicked back to AHUG holders.

    My weighted average purchase price across accounts was $17.88 adjusted for purchases made a few days before the previous interest payment.

    AHUG was trading at $10 before it was suspended pending a sale of the Alleasing trust which took Allco about 2 weeks longer than they expected. An announcement was made on Friday outlining the terms of the sale:

    AHUG is now trading again and traded as high as $38.1 before closing at $33, a reasonable 230% rise from the pre-suspension price!

    A quick look at the numbers shows that a purchase today at $30 would provide an annualized 119% return or 40% over 4 months followed by an additional 27% after 20 months from now.

    The outstanding risks are:
    The trust is worth book value + additional residual value + interest margin + new business margin. This is roughly -30M + 180M + 60M (over 2 years) + 45M (assuming 5% on assets as new business is written). This comes out at 255M. Therefore CHAMP Private Equity, the purchasers, are getting a good deal and ought to be motivated to see this close. Allco are motivated because they have to desperately raise cash to meet debt level agreements. AHUG holders are motivated because they may see 60% in a runoff but that would be in 2-3 years time. Given this business environment, 41% return now and 9% return in 18 months is about the same thing or slightly better.

    Therefore a buy around $30 is still looking good and is much lower risk that a buy at $10 before the announcement (and much lower reward).
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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