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Welcome to Episode 32 of Special Situation Investing. Today we have a quick episode covering newly-released details of the spin-off situation with Fortress Transportation and Infrastructure, LLC (FTAI).
We last talked about FTAI back in Episode 20, released on April 18th, were we broke down the details on FTAI’s business model as well as how it planned to divide the company in two via a spin-off. I encourage you to listen to that episode if you haven’t already, or if you’re looking for a detailed summary of the company makeup.
But as a cursory reminder: in its current state, FTAI is made up of two diverse sections, its aviation business and its infrastructure business. On the aviation side of the company, FTAI owns and leases out a fleet of 315 or so aviation assets including aircraft and aircraft engines. Those numbers were as of our last podcast. Since then, during the earnings call on April 29th, FTAI reported it was writing-off a total of $125 million for 12 aircraft and 20 engines that were currently within either Russia or Ukraine. In reaction to that loss, FTAI filed insurance claims for the amount of $250 million. The company is optomistic that it will receive most, if not all, of that amount. But it remains to be seen if FTAI will recover any of its lost inventory, and if not, how much insurance will pay out.
The other half of FTAI’s business, the infrastructure side, is made up of a portfolio of transportation-related business including energy ports, railways, and crude oil and gas terminals.
A couple details on the spin-off that were available and outlined in Episode 20, include:
In conjunction with the spin-off, FTAI will simplify its corporate structure by converting from its current state as a K-1 partnership and both companies will exit the spin-off as c-coporations.
Additionally, the company will, simultaneous with the spin-off, be uplisting from the NYSE to the Nasdaq.
And finally, both companies are expected to continue FTAI’s 10-year track record by paying out regular dividends.
At the conclusion of Episode 20, we were left wondering when the transaction would occur as well as the final nuts and bolts of the distrubution. This information was delivered either in the Form 10 that was released on July 1st or in the press release announcement made last Tusday.
The Form 10 revealed that every shareholder of FTAI as of the date of record will be entiteled to recieve 1 share of the spin-off for every 1 share they own of FTAI.
Interestingly, the Form 10 also listed out eveerything that will be included in the spin-off. The largest components were covered in the last episode including its ports, terminals and railroads. The smaller assets within the infrastructure portfolio include:
an equity method investment in two ventures developing battery and metal recycling technology (‘‘Aleon’’ and ‘‘Gladieux’’),
a tank car cleaning and repair business (‘‘KRS’’),
a green-tech company that is developing recycling facilities to process traditionally non-recyclable waste plastics in key North American markets (‘‘Clean Planet USA’’),
an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries (‘‘FYX’’),
a business that develops technologies to capture carbon dioxide from industrial emissions sources (‘‘CarbonFree’’), and
a shipping containers that are owned and leased (‘‘Containers’’)
The final installment of spin-off details occured last week, on July 12th, when Fortress announced that its board of directors had approved the final details of the previously proposed spin-off of its infrastructure business.
To begin with, the spin-off will establish FTAI’s infrastructure business as an independent, publicly traded company called FTAI Infrastructure Inc. (“FTAI Infrastructure”).
As currently scheduled, the distribution is expected to occur on August 1, 2022 and the record date is July 21, 2022. So close of business this Thursday, is the cutoff for buying FTAI in order to receive the spin-out as a distribution. After that, both companies would have to be purchased separately.
It is expected that shares of FTAI Infrastructure common stock will begin trading on the Nasdaq under the ticker symbol “FIPWV” on a when-issued basis on July 20, 2022, subject to settlement after the distribution.
And lastly, on the first trading day following the distribution, August 2, 2022, FTAI Infrastructure will begin regular-way trading on the Nasdaq under the ticker symbol “FIP,” and FTAI will resume trading ex-distribution under the ticker symbol “FTAI”.
A summary of our thoughts on this situation is, while both FTAI, and soon-to-be FTAI Infrastructure, are well-run, profitable businesses, we believe there is better value to be found elsewhere. Some of those companies are topics of other episodes on our podcast, including Texas Pacific Land and Garrett Motion. Others who are still looking to play the post-COVID aviation comback or to hedge inflation with energy investments, may have differeing opinions. As the spin-off transpires, and after, we will continue to watch these companies for changes that could produce value.
That wraps up Episode 32. As always, we hope you found it informative and we look forward to bringing you another episode soon.