Three Houston blank check companies file to go public

Three Houston-area blank check companies have filed to go public in the last few days. This is part of a record year for such companies. According to the Wall Street Journal, blank check companies have raised $41 billion so far this year, compared to $14 billion last year.



Landcadia Holdings III

Landcadia Holdings III filed to go public. This is the third blank check company launched by Tilman Fertitta, CEO of Landry’s and Richard Handler, the CEO of Jefferies. They plan to raise $500 million. As before, the company plans to acquire a business in the consumer, dining, hospitality or entertainment sectors.

Landcadia Holdings went public in 2016 and acquired Waitr Holdings, an online food ordering and delivery service, in 2018 for $308 million. The business has had a rough ride since (3 CEO’s and 3 CFO’s), though the pandemic has been good for the business.

Landcadia Holdings II went public in May 2019. It is in the process of buying the Golden Nugget Online Gaming business from Landry’s.

Genesis Park Acquisition

Genesis Park Acquisition Corp has filed for a $200 million IPO. The company is led by chairman David Siegel, who is also Executive Chairman of an ultra-low-cost airline carrier, Sun Country Airlines. Together with CEO Paul Hobby (the Founding Partner of PE firm Genesis Park LP), they are seeking a business in the aviation sector with an enterprise value of between $500 million and $1 billion.  The CFO is Jonathan Baliff, former CFO and CEO at Bristow.

Delwinds Insurance

Delwinds Insurance Acquisition has also filed for a $200 million IPO. It is a blank check company formed by The Gray Insurance Company. CEO Andrew Poole is an investment consultant at Gray while CFO Bryce Quin, is a process improvement specialist at Gray. They previously led a blank check company called Tiberius that went public in 2018. It subsequently acquired International General Insurance earlier this year.

Delwinds plans to target businesses in the insurance technology sector or brokers or carriers that use insurance technology (i.e using data analytics or artificial intelligence to better price risk or automate back offices procedures).

Recently gone public

Peridot Acquisition Corp became the latest Houston-area blank check company to go public when it raised $300 million, effective September 23, 2020. The business was formed by Carnelian Energy Capital and is seeking a business with a positive environmental impact.

Industrial Tech Acquisitions raised $75 million in early September. It is searching for industrial and energy technology businesses with an enterprise value of between $250 million and $500 million.

Graf Industrial, which went public in October 2018, is in the process of acquiring Velodyne Lidar, based in San Jose.

 

 

US Physical Therapy hires new CFO

US Physical Therapy has appointed Carey Hendrickson as its new CFO. He replaces Larry McAfee, who is retiring.

The company operates 551 outpatient physical therapy clinics in 39 states as well as managing 32 physical therapy facilities for third parties. It also has a industrial injury prevention division. The company has its head office in west Houston and has a market capitalization of $1 billion.



In March and April, many of its clinics were closed. At the lowest point in mid-April, visits were about 45% of pre-pandemic levels. By August, they were at 85%, The company cut costs aggressively through salary reductions, furloughs and rent deferrals. It increased its EBITDA in Q2 over Q1, despite revenues being down nearly 30%.

Mr Hendrickson joins from Capital Senior Living Corporation, a publicly-traded company based in Dallas (market cap $20 million), where he was CFO. Prior to joining them in 2014, he was the CFO at Belo Corp, the operator of television stations. Mr Hendrickson will receive a base salary of $450,000. He also received a grant of stock worth $400,000 that will vest over four years.

Mr McAfee has been CFO since joining the company in 2003. He originally announced his intention to retire back in January 2020 but later deferred the intended retirement date because of the pandemic. He will stay on until the Annual Meeting in December, at which point he will resign from the Board. Mr McAfee will then enter into a six month consulting agreement where he will be paid an hourly rate, on an as-needed basis.

SEC filing – US Physical Therapy new CFO

Houston oil trader indicted over Ecuador bribery scheme

Javier Aguilar, a Mexican citizen living in Houston, has been indicted on charges of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit money laundering. He faces charges in the Eastern District of New York.

Mr Aguilar was an Oil Trader for Vitol, which has its head office in Geneva. According to the press release released by the Justice Dept, between mid-2015 and 2020, Aguilar paid two intermediaries $1.4 million for their efforts to bribe government officials in Ecuador. In turn, the intermediaries paid out $870,000 to the officials.



In exchange for bribes, Vitol secured contracts to purchase approximately $300 million in fuel oil.

Press Release and Indictment details don’t match

What’s interesting is that the details quoted in the press release don’t match the details in the indictment.  The indictment has two counts. Count One is the conspiracy to violate the FCPA. This count has all the detail. Count Two is the conspiracy to commit money laundering and the indictment has no specific details on this.

The Scheme

Regarding count One, the indictment states that Aguilar sent an email in September 2016 to one of the intermediaries directing that individual to send a letter from a state-owned entity in Oman to Ecuadorian official #1.

One of the intermediaries created 39 sham invoices and sent them to a shell company in Curaçao. Vitol wired approximately $750,000 from a UK bank account to the shell company. It’s not clear in the indictment which invoices this payment covered. However, as payment for 13 of the 39 invoices, the shell company wired approximately $250,000. The money was sent to bank accounts in the Cayman Islands and Curaçao controlled by the intermediaries. In turn, they sent $225,000 (via a correspondence bank in New York) to an account in Portugal controlled by the Ecuadorian official.

The press release refers to Ecuadorian officials, however, the indictment only refers to one in count One.

If convicted, Aguilar faces a maximum sentence of 20 years in prison

https://www.justice.gov/opa/pr/oil-trader-indicted-international-bribery-and-money-laundering-conspiracy-involving-corrupt

Hospitality company settles with SEC over executive perks not disclosed

RCI Hospitality has agreed to settle with the Securities and Exchange Commission (SEC) over allegations that it failed to disclose $615,000 in executive compensation in the form of perquisites.

The company has agreed to pay a civil penalty of $400,000. Eric Langan, CEO, has agreed to pay 200,000 while CFO Phillip Marshall, who stepped down last week, will pay $35,000. However, the company did not admit to or deny the findings of the SEC.



RCI operates 38 live-adult entertainment clubs and 10 Bombshell restaurants (the SEC amusingly calls them military-themed!). Due to the pandemic, only 34 were open at the beginning of September. The company’s head office is in NW Houston.

The SEC inquiry began after anonymous bloggers started posting a series of allegations in mid-2018. You can read their reports here and here.

The findings

Among the many findings of the SEC;

  • Langan and Travis Reese, Executive VP – who both hold pilot’s licenses – used RCI-owned aircraft for personal use. The value reported in the annual proxy was the tax value of its use, not the aggregate incremental cost.
  • RCI reimbursed Langan for trips that he took with his girlfriend or for trips that she took alone. This was not disclosed as executive compensation.
  • RCI reimbursed Langan for the use of automobiles by the executives and their families. Only the depreciation of the vehicles was disclosed as compensation.
  • Marshall commuted weekly from his home in Dallas to the Houston corporate office. However, the company failed to disclose the housing and meal allowances it provided Marshall.
  • The company failed to disclose that Langan’s girlfriend was on the payroll between 2014 and 2019, even though she was, effectively, his personal assistant.
  • Between 2014 and 2019, Langan, who lives in Bellaire, directed the company to make $119,655 of donations to the private school that two of his children attended.
  • The company hired Langan’s father and brother to make almost $500,000 worth of patio furniture for the Bombshell’s restaurants. This was not disclosed.

The SEC founds that the company’s internal controls were lacking. However, it noted that the company has been undertaking remedial efforts including hiring outside counsel to conduct an independent investigation and implementing new internal controls and policies.

https://www.sec.gov/litigation/admin/2020/34-89935.pdf

Helicopter company appoints new CFO

Jennifer Whalen has been appointed the CFO of Bristow Group, the helicopter company that has its head office in west Houston.



Bristow merged with ERA Group in June, in an all-stock transaction. Although Bristow shareholders ended up with 77% of the combined company, it was mostly ERA management that took the senior roles in the combined group.

Ms Whalen joined ERA in 2012 and was appointed interim CFO in June 2017. The interim tag was removed in February 2018. After the Bristow/ERA merger, she was again named interim CFO. The company stated that a permanent CFO would be named later.

Ms Whalen is rewarded for her patience with a pay raise of $70,000 to $380,000. She also received a one-time equity award of 11,667 shares of performance-vested restricted stock and 11,667 stock options.

At the time of the merger, the company said it expected to achieve annualized cost savings of at least $35 million. This would occur through the elimination of duplicate corporate expenses and greater operational efficiencies. Last month, the company increased that amount to $45 million. It said it had already realized $16 million of annualized savings.

SEC filing – Bristow Whalen CFO appointment

Retailer settles with Justice Dept for charging military excess interest

Conn’s Inc, the electronics and furniture retailer, has settled with the Justice Department to resolve allegations that they violated the Servicemembers Civil Relief Act (SCRA) by charging at least 184 servicemembers excess interest on their purchases.

Conn’s has 143 stores in 14 states. It has its head office in The Woodlands. For the year ended 31 January 2020, the company had revenues of $1.5 billion. A quarter of this comes from finance charges.



Under the SCRA, military members can be charged no more than 6% interest on retail installment contracts.

Sergeant Sargent

In May 2018, a Sergeant called Travon Sargent, with the Oklahoma National Guard received orders to deploy to Fort Hood the following month. Under the terms of the act, he was eligible for the 6% interest rate as soon as he received his orders. Conn’s kept charging him 21% interest despite repeated requests from his wife. They eventually reduced it to 6%. However, they only backdated it to June 2018 and not the date he received his orders.

However the November statement sent to Sergeant Sargent listed the interest rate as 21%. So, in December 2018, a United States Army Staff Judge Advocate wrote to Conn’s asking for confirmation that the interest rate had been reduced to 6%. The Conn’s legal department never responded.

The investigation

Justice Department began an investigation in March 2019. Conn’s admitted that 185 servicemembers, who applied between March 2014 and May 2019, did not receive the full SCRA benefits. Conn’s written policy and procedures on SCRA had clauses and restrictions that are not part of the SCRA. One example was that Conn’s required at least one payment on account before entry on active duty in order to get the 6% interest rate.

Conn’s has issued $59,216 in refund checks and issued credits of $28,589 to 185 servicemembers ($475 average).  It also agreed to pay each servicemember an additional $500 and take steps to instruct the three major credit bureaus to delete negative credit entries that arose from their actions. The company also agreed to pay a $50,000 fine.

https://www.justice.gov/opa/pr/justice-department-settles-texas-based-furniture-and-appliances-chain-charging-servicemembers

 

 

Centerpoint Energy appoints new CFO

Jason Wells has been appointed the new CFO of Centerpoint Energy. He replaces Xia Liu, who bolted in May, after less than a year to become the CFO at WEC Energy. Kristie Colvin, the interim CFO, reverts to her previous role of Chief Accounting Officer.



Mr Wells joins from PG&E Corporation, the embattled California utility. He joined PG&E in 2007 and became CFO in January 2016. PG&E filed for bankruptcy in January 2019 and exited in July 2020, with a newly-reconstituted board. 11 of the 14 directors are new. The CEO, Bill Johnson, stepped down on June 30, having been in the role for only 15 months. The company had also announced plans to move its head office from San Francisco to Oakland.

Mr Wells will receive a base salary of $650,000 and a sign-on equity award of restricted stock units worth $1 million, that will fully vest in two years. The company will also buy his residence in San Francisco and pay for relocation expenses.

Centerpoint appointed Dave Lesar, the former Halliburton CEO, as its new CEO on July 1. Under pressure from activist investor, Elliott Management, the company is slimming down to become more of pure-play utility company.

SEC Filing – Centerpoint Wells appointment

 

Hospitality Group appoints new CFO

RCI Hospitality has promoted Bradley Chhay to CFO, replacing Philip Marshall, who is retiring from that role. Mr Chhay joined the company in November 2015 as Controller. He had previously worked for Live Nation and RigNet.

Mr Chhay, age 36, will have a base salary of $400,000. Mr Marshall, age 70, had been the CFO since May 2007. He will stay on at the company, focusing on income tax matters.

RCI operates adult nightclubs such as Rick’s Cabaret and restaurants and sports bars under the Bombshells brand name. It has 48 units in total, though only 34 were open at the beginning of September. The company’s head office is in NW Houston.

Like other hospitality businesses, it has been hit hard by the pandemic. Revenue for the three months to June 2020 were only a third of revenues from the comparable period, though the company states that business has somewhat recovered since. It managed to generate a positive cash flow in the quarter as a result of deferring payments that are real estate related.

Last year, the company came under fire from anonymous short sellers who alleged a series of related party transactions that were not disclosed in SEC filings. The company conducted an internal review that mostly vindicated ‘Big Rick’, the anonymous blogger. It also strengthened its related party transaction policy and vowed to appoint at least one independent director.

A formal SEC investigation into the company is still ongoing.

So, I find it amazing that the SEC filing announcing Mr Chhay’s appointment also disclosed that his brother holds a $100,000 promissory note from the company. It’s good that the company correctly disclosed it, but it shows the pervasive amount of related party transactions.

 

SEC filing – RCI Hospitality CFO appointment

CFO of publicly-traded midstream company departs

Michael Pearl, the CFO of Western Midstream Partners, will be leaving the company, although the company didn’t say when! Michael Ure, the current CEO, is taking over the CFO duties until a successor is identified.



Western Midstream is a master limited partnership that went public in 2008 as a subsidiary of Anadarko. It’s now owned by Occidental, following its takeover of Anadarko last year. It has its head office in The Woodlands.

Mr Pearl joined Anadarko in 2004. He was the CFO of the general partner of Western Midstream for two years straddling the IPO.  After that, he held senior financial roles in Anadarko until he became the CFO of Western Midstream in October 2019. His base salary was $455,000.

In August 2019, ahead of his proposed appointment, Mr Pearl entered into a retention agreement that provided for three cash payments of $261,000 each, to be paid in February 2020, August 2020 and February 2021. If he was terminated without cause, the unpaid amounts would vest. In signing the retention agreement, Mr Pearl waived his right to additional severance payments.

SEC filing – Pearl departure

 

Former CEO of Houston public company arrested for securities fraud

Jeff Hastings, the former CEO of SAExploration, has been arrested in Anchorage, Alaska on charges of wire fraud and securities fraud. He will face charges in the Southern District of New York.



SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy Back in February, the company restated its financial results, going back to 2014. It alleged that Hastings and former CFO Brent Whiteley misappropriated nearly $17 million between 2012 and 2019.

Whiteley hasn’t been charged with any crimes. In the FBI complaint, he is named as ‘Co-conspirator 1″. The FBI states he has ‘agreed to assist law enforcement, in part, in hopes of entering into a cooperation agreement with the Government’.

Two other co-conspirators are mentioned in the complaint, by title, though not by name. Brian Beatty, the founder and COO until December 2019, is ‘CC-2’. Michael Scott, the VP of Operations is ‘CC-3’. He resigned from his position at SAEX on September 14.

The Scheme

The complaint alleges that the scheme began in February 2015 when the CEO and CFO discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for Hastings and Whiteley was that the Board of SAEX was against the idea of the company operating its own data library.

In May 2015 Hastings and Whiteley set up Alaskan Seismic Ventures (ASV) as a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators. However, they hid their involvement and control over ASV from the Board and investors.  To get the state credits, the company was required to conduct transactions with SAEX on an arm’s length basis.

The CEO and CFO learned that lenders were willing to make loans to ASV, if ASV was able to demonstrate it had substantial capital. $12 million of fake invoices to another company secretly controlled by Hastings allowed SAEX to send $6 million to ASV.

Unfortunately, the lenders decided not to provide funding to ASV. Hastings and Whiteley decided to send $5.8 million back to SAEX as partial payment for the seismic data it acquired.

The remaining $6 million was allegedly misappropriated by Hastings and the co-conspirators for their own personal use.

Other issues raised by the company

When the company restated its results it also said that

  • From 2012 to 2019, payments of $4.1 million were made to a company called RVI Consulting. This was secretly controlled by Mr Whiteley. The payments were originally recorded as legal and professional expenses.
  • There was a misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.

These two items are not part of the charges brought against Mr Hastings.

HastingsComplaint