Re: What is your return for 2005?
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Cat,
I didn't read the 10Q, but whats the odds that they are overstating the value of their remaining assets to be liquidated?
If its taking over a year to liquidate, there has to be a possibility, and the market may be pricing that in.
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Typically the risk is low. Management doesn't have the same incentives as they do in an operating company. They will be leaving and doesn't want to have shareholder suits hanging over them while looking for their next job. Often they'll be very conservative with their estimates to cover their butts.
But these are very odd situations. Most of the participants who make up "the market" in this case don't have much experience with liquidations, so I believe they tend to over estimate the risks. That's not saying that occasionally liquidations take big hits from unforseen problems. GTA is an excellent example of one that's continually missed their liquidation estimates. In that case there were huge red flags about the competence and honesty of management.
And one of the biggest risks is timing. Management can be so conservative that they'll sit on cash instead of paying it out, until all contingent liabilities are settled, even if their cash covers liabilities several times over. Sometimes you need a large shareholder to shake their tree. If REMC ends up taking until 2007 to pay out their distributions, the annualized return will be disappointing.
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