On 11/06/09, Western Sizzilin completed the spinoff of Steak N Shake shares that it owned. Approximately .465 shares of SNS were received for each share of WEST. I haven’t seen a tax treatment document from the companies yet, so I just took .465 x $12 off the costs basis of the WEST shares in the portfolio, and added SNS at $12.
At some point before the end of the year, the WEST shares currently at ~$8.60 will be converted into SNS debt at 14% interest with a $8.11 face value. As previously discussed, the debt is callable in 1 year (based on the filing the first call date would be 12/31/2010.). So if it is called on that date, which I do not believe is likely, it will pay $1.135 in interest but lose $0.49 in principle. This nets out to $0.645 in return on a $8.60 cost, or a yield of 7.5%. This is over 13.5 months so an annualized yield is 6.6%, which is inline with other BBB rated debt of restaurants. Now if Mr. Biglari doesn’t call it at that time, then the yield to maturity increases.
Disclosure: Long SNS, WEST.Please see full disclaimer.
Tags: Steak n Shake, Western Sizzilin
