Why Does Silver Point Capital Love This ‘Fab Five’?
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Silver Point Capital LP, founded in 2002 by Goldman Sachs alums Edward A. Mule and Robert J. O’Shea, is a Connecticut-based distressed debt and credit-focused private investment firm.
Prior to forming Silver Point Capital both of the founders had an impressive career track at Goldman Sachs that started in the early nineties. Mule and O’Shea pride themselves on investing in highly complex situations that generally require deep analytical resources and timely execution.
According to the firm’s 2Q 13F, Silver Point concentrated the majority of its fund in its top two holdings, while it also held a couple names that are likely lesser known to investors (see all of Silver Point’s 2Q holdings).
The top 2Q 13F holding for Silver Point was Delphi Automotive PLC (NYSE: DLPH), making up 61.5% of the firm’s 2Q 13F portfolio. Although Silver Point reduced their position by 23% the firm still owned 19 million shares, about 6% of Delphi’s outstanding shares.
Delphi beat 2Q earnings estimates by posting EPS of $1.01, versus a $0.91 consensus. Most of the EPS upside was attributed to margin expansion, where Delphi’s 11.7% operating margin, up 150 bps year over year, beat 11.0% consensus estimates. The company also continues to put its strong free cash flow to work, recently announcing a new share repurchase program of $750 million. This comes on the heels of completion of a $300 million share repurchase. In its latest earnings release, the company raised 2012 guidance, increasing EPS guidance between $0.05-$0.06, and revenues up $600 million. Even with the company up 50% year to date, it still trades relatively cheaply to its peers and has an 8x trailing P/E and a forward P/E of 7x.
American International Group, Inc. (NYSE: AIG) was Silver Point’s second largest holding, with 20% of their 13F holdings allocated to AIG at the end of the second quarter. The firm increased their 1Q position by 22%. AIG reported 2Q results of $1.06, above consensus of $0.57. Even after backing out nonrecurring gains, the company still posts core earnings around $0.65-$0.70. Nonrecurring gains were related to ML III and AIA. AIG has been showing strong performance, with a slew of repayments to the U.S. Government, who now own less than 20% of the company.
Silver Point’s third holding, Sunoco, Inc. (NYSE: SUN) was a position the firm downsized by 71% during 2Q. The company, a petroleum refiner and marketer, has two key segments driving growth, logistics and retail. In April, Energy Transfer Partners L.P. entered an agreement to purchase Sunoco for over $50, where Sunoco currently trades around $47. Prior to the acquisition announcement, the company traded around $38. Although the acquisition still awaits regulatory approval, Sunoco announced a $0.20 2Q dividend – representing a 1.7% yield – that was above the 2Q 2011 $0.15 dividend.
For Citigroup Inc. (NYSE: C), Silver Point’s position remained flat at 490,000 shares and made up 1.7% of the firm’s 2Q 13F portfolio. The revenues for Citi are expected to rise 3.5% in 2012, with the majority of that coming from a 4.5% rise in North American revenues, signaling a better than expected banking rebound in the U.S. versus the rest of the world. Citi should see positive EPS boosts from 2012 to 2013, estimated at $3.80 and $4.62, respectively. The company should also be able to put to rest a several year long lawsuit in the coming quarters. The class-action lawsuit settlement is related to allegations against misleading investors on exposure to sub-prime mortgages and awaits judge approval.
Dana Holding Corporation (NYSE: DAN) was Silver Point’s fifth largest holding and was increased by 5,263% in 2Q. Dana is a supplier of driveline products and power technologies for vehicle manufacturers globally. Earlier this month the company announced a partnership with Allison Transmission and Fallbrook Technologies to develop high-efficiency transmissions for vehicles and equipment. The company also opened new distribution centers in China and Mexico to increase product availability and improve delivery times. All the while, the company is down almost 10% over the past month and relatively flat year to date. Dana shows promising growth with its recent initiatives and trades at a forward P/E of 6, versus its trailing P/E of 9.
In addition to Silver Point, Delphi also calls John Paulson, with 32 million shares, and David Einhorn, with 8 million shares, as owners. Paulson had 7% of his 13F 2Q portfolio invested in Delphi, and Einhorn 3.2%. For AIG and Citi, Bruce Berkowitz had 40% of his 2Q 13F invested in AIG, while over 10 funds we track had at least 4% of their 2Q 13F invested in Citi (See our analysis on financials to buy for QE3). Dana gathered the least amount of big name billionaire fund managers, but did have two smaller firms increase their stakes heavily—with Fine Capital Partners increasing theirs by 40% and Valinor Management increasing theirs by 312%.
Sunoco is still hoping to wrap up being acquired, while Citi and AIG will continue to face regulation uncertainty. Even as Delphi is up 50% year to date, the company still represents a value play, while Dana is relatively cheap and attracted a large increase in ownership by Silver Point. The stock still remains underrepresented by the funds we track.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of American International Group and Citigroup Inc and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.