NII Holdings: Final Boarding Call For This Liquidation Play

12/24/19

Summary

  • NII Holdings has announced it has closed the sale of its last operating subsidiary.
  • The company will liquidate and return its cash to shareholders.
  • NII expects to return between $2.17 and $2.68 per share over the coming years; most of it will be returned in the coming months.
  • At today's closing price of the stock $2.17, a middle-of-the-road liquidation scenario results in a decent 11% IRR.

NII Holdings (NIHD) has been a frequently discussed stock on a number of stock blogs over the course of 2019, including this excellent deep analysis by Seeking Alpha contributor Green Knight in August.

Earlier this year the South-American network operator announced it planned to liquidate after selling off its last remaining operating subsidiary in Brazil. However, it was unclear when (if at all) the transaction would close, and what the exact net sale proceeds would eventually be. The stock made for quite a risky bet, with a significant downside if the sale would have fallen through or would have been delayed considerably.

On Wednesday the NII Holdings-investment case was de-risked when the company said its sale of Nextel Brazil had finally closed, a few months behind schedule. While the expected return of this investment has also dropped with the news of the deal closing and the stock rising significantly, I believe there's still enough upside potential left to take a look at this defensive liquidation play.

There isn't much time left though: with NII Holdings preparing to dissolve the company and distribute remaining cash to shareholders, it announced trading in its shares will likely be suspended and subsequently delisted from the 2nd of January onwards.

After the sale of Nextel Brazil NII Holdings will hold approximately 191 million dollars in cash, as well as 268 million dollars in three different escrow accounts. Considering the size of the amount in escrow, it's clear these accounts are quite important in this liquidation scenario. Let's quickly go over them:

  • 135 million dollars in escrow to pay off NII Holdings convertible debt holders. Unless a settlement is reached about premature payment, recovery should be zero.
  • 30 million dollars in escrow for indemnification with regards to (tax) claims surrounding the sale of Nextel Brazil. Recovery is uncertain.
  • 103 million dollars in escrow for indemnification with regards to (tax) claims surrounding a previous sale of its Mexican operations. NII Holdings estimated recovery at 75 million dollars earlier this year.

Distributions:

With regards to distributing cash to its shareholders, NII Holdings made the following statement:

Based on current information (including actual net sale proceeds), assumptions and estimates, the Company expects the total amount of cash available to be distributed to shareholders in the future will be between $227 million ($2.17 per share) and $280 million ($2.68 per share).

This range of distributable values is primarily driven by the ultimate recovery of amounts currently held in escrow accounts.

NII Holdings did not provide any clarity with regard to the timing of future distributions. However, the company previously said it was planning to make an initial distribution of $1.00 - $1.50 per share (104 to 156 million dollars) in the months following the sale of Nextel. Even when considering liquidation costs, I can't think of a good reason why that initial distribution wouldn't be on the high end of that range, considering the amount of cash the company has on hand.

The timing of subsequent distributions will be dependent on when amounts in escrow will be released. NII Holdings is battling in US courts trying to get up to 65 million dollars released as soon as possible from the Mexican escrow: a positive court ruling would significantly speed up the liquidation process (and the expected IRR of this investment). The Brazilian escrow will expire 18 months from now.

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