This note was originally published November 04, 2013 at 07:46 in Daily Trading Ranges

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$RT: Goodbye, Ruby Tuesday?

Takeaway: We believe RT is in serious trouble and is likely headed for Chapter 11.

This note was originally published October 28, 2013 at 15:12 in Restaurants

$RT: Goodbye, Ruby Tuesday? - roob

Today, Ruby Tuesday announced the resignation of its Chairman Matt Drapkin.  Drapkin, who recently sold 1.45mm shares, joined the board of RT three years ago as an activist that, along with Carlson Capital, was intent on enhancing shareholder value.

He is now being replaced by the company’s current CEO James Buettgen, who left Darden in December of 2012 in order to resuscitate the Ruby Tuesday brand.  Despite an attempt to revive the business, RT’s operating fundamentals remain some of the worst in the casual dining industry.  To make matters worse, there appears to be little hope for a turnaround – RT has only seen one quarter of positive same-restaurant sales, on a two-year basis, since FY3Q08.


$RT: Goodbye, Ruby Tuesday? - pen1



Furthermore, we believe the largest impediment to the revitalization of this fourth tier Bar & Grill brand is Chili’s, which is run by a very strong management team.  In EAT’s recent quarterly earnings call and our subsequent call with CFO Guy Constant, the company announced its intent to pursue an aggressive strategy in order to grow same-restaurant sales.  This includes increasing TV media spend to support new products (including the upcoming Tex-Mex platform), implementing new online ordering for its “to go” business, and rolling out its delivery service.


Importantly, Chili’s will be moving its successful re-image program to the state of Florida in the coming months.  Currently, 10.9% of RT’s system-wide domestic units are in the state of Florida, making it the company’s most important state.  This means that RT is heavily exposed to any success that Chili’s may have in the region.  If Chili’s is able to steal significant market share in Florida, RT’s business will suffer.  If the past is any indication, this could very well happen.  Look at BJRI’s recent quarterly results – they were downright ugly.  We believe that Chili’s re-image program in California had a significant impact on market share trends in the region.  On the margin, this is all good news for EAT and their core brand, Chili’s.


$RT: Goodbye, Ruby Tuesday? - mt



RT’s management team has guided to an improvement in sales directionally throughout the year and the street has reflected that in its estimates.  We are highly suspect that this will unfold as planned, and believe that further disappointments are likely.


Capex has been reduced significantly since FY08, as the company is having a difficult time making ends meet.  EBITDA was negative in 1Q14 and the company continues to lose money.  We could see a major restructuring charge coming and believe that a significant number of store closings are needed.  If not, the company could be headed for Chapter 11.




Howard Penney

Managing Director

LINN & BRY Strike a New Deal

LINN ups the ratio and BRY is still committed to the deal, despite LINN's ongoing SEC inquiry.  In our view, the deal changes little fundamentally, but will likely serve to improve sentiment and confidence in LINE / LNCO in the near-term, particularly around its C-Corp E&P roll-up strategy.  Short LINE / LNCO remains a Hedgeye Best Idea.


LINN / BRY Revises Merger Terms......

  • Stock-for-stock deal ratio increased 35% from 1.25x LNCO shares to 1.68x LNCO shares (incremental ~24MM LINE units / LNCO shares)
  • No cash component
  • End date moved from 10/31/13 to 1/31/14
  • Unit / Shareholders expected to vote on transaction in mid-December
  • Conference call tomorrow, 11/5 at 11am EST, to discuss merger and 3Q13 results

Understated Maintenance CapEx = “Accretion”……LINN will offer BRY 1.68x LNCO shares per BRY share, a 35% increase in the ratio from the prior 1.25x.  That’s an additional 24MM LINE units (now 94MM new units) to pay a distribution to (currently $2.90/unit/year).  LINN states in the press release that, “The transaction is expected to be accretive to LINN’s cash available for distribution,”  however, we believe that LINN is materially understating BRY’s maintenance CapEx (last guided to ~$240MM per year), which is the source of all of the alleged “accretion.” 


BRY’s turn to focusing its capital exclusively on oil production has come at a high cost.  In 2012, BRY’s organic proved developed (PD) F&D cost was $41.38/boe (17.9MM boes added at a cost of $741MM), up from $24.56/boe in 2011.  LINN’s guidance for BRY maintenance CapEx of $240MM per year implies an F&D cost ~$15.00/boe if we assume exit rate 2013 production of 42,500 boe/d; in our view, $15.00/boe is inconsistent with BRY’s actual capital intensity, as we show in the tables below.  Assuming an F&D cost of $30 - $40/boe, BRY CapEx to keep production and reserves flat in 2014 would be $465MM - $621MM, resulting in LINE distribution per unit dilution of 9 – 25%.


LINN & BRY Strike a New Deal - linn1


LINN & BRY Strike a New Deal - linn2


Change in LINE-to-LNCO Tax Liability Payment……LINN amended the LINE / LNCO “Contribution Agreement” such that LINE will no longer pay LNCO a $6MM distribution in 2013, 2014, and 2015 to compensate LNCO for assumed tax liabilities: “Pursuant to the Contribution Agreement Amendment, LINN no longer has an obligation to pay LinnCo a special distribution for tax liabilities fixed at $6 million per year for 2013, 2014 and 2015 and instead, LINN and LinnCo agree to work in good faith at the end of 2013, 2014 and 2015 to determine whether and in what amounts LINN should make tax liability distributions to LinnCo to reasonably compensate LinnCo for the actual increase in tax liability to LinnCo, if any, resulting from the allocation of amortization, depletion, depreciation and other cost recovery deductions using the “remedial allocation method” pursuant to Treasury Regulations Section 1.704-3(d), with respect to the assets acquired in the Contribution” (11/4/13 Form 8-K).  LINN expects LNCO’s cash tax liability to be “approximately $0.00, $0.01 and $0.07 per share for 2013, 2014 and 2015.”


Kevin Kaiser

Managing Director

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[video] Keith's Macro Notebook 11/4: #EUROBULLS, GOLD, UST10YR

McCullough Buying Gold?

Takeaway: Shame on Bernanke.

I bought Gold for the first time in a year on Friday.


The immediate-term TRADE correlation between the US Dollar and Gold is -0.78, so I shorted the Dollar for the first time in over a year too.


Shame on Ben Bernanke. Shame on the Fed's no tapering policy. It should slow growth back to 2% from 2.5% first, then we can decide what happens from there (on the margin that matters).


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McCullough Buying Gold? - drake

European Banking Monitor: More Good News Than Bad

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .




European Financial CDS - Europe resumes its winning ways. We are seeing broad-based improvement across Spanish, Italian, French and even Greek banks. The only notable widening came from Sberbank of Russia, where swaps widened by 19 bps to 212 bps.


European Banking Monitor: More Good News Than Bad - w. bank cds


Sovereign CDS – Sovereign swaps had a good week last week. The US posted a sharp improvement of 7 bps, falling to 30 bps. France and most of the rest of the Europe also moved lower. The only negative movers were Japan (+2 bps) and Germany (+1 bp). 


European Banking Monitor: More Good News Than Bad - w. sov1


European Banking Monitor: More Good News Than Bad - w. sov2


European Banking Monitor: More Good News Than Bad - w. sov3


Euribor-OIS Spread – The Euribor-OIS spread was unchanged last week at 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: More Good News Than Bad - w. euribor


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The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%