Aston Hill Financial Update

Aston Hill Financial is a struggling mutual fund company trading on the TSX symbol AHF. The current market cap of AHF is only $10.64 million as the company is weighed down by a large debt in the form of convertible debentures issued during more optimistic times. According to their most recent financial statement, AHF has about $26 million worth of convertible debentures outstanding, which means the company is insolvent based on its current market value (in the sense that its liabilities are more than its market cap).

Aston Hill runs a fairly traditional mutual fund business focused on a retail wholesaling model. Their lead portfolio manager is Ben Cheng, who still has a decent following from investors, and the company recently brought on James Werry as CEO.  James Werry is an old hand on Bay Street, and the idea must be that Werry will arrange a sale of AHF to another mutual fund manager or dealer? The company recently managed to extend the maturity of its convertible debentures from 2016 to 2019 by increasing the rate paid to holders by 0.50%. I’m not sure the holders of the debentures had much of a choice since default of payment would mean AHF is bankrupt.

AHF should probably dramatically change its strategy soon. Either the company needs way more scale, or it needs to sell itself and/or wind down as a public company. The wife of the former founder control 18% of the common shares, and her son was the former CEO. This company is a real big mess.

The company is also running operating losses.  You’d think the convertible debentures would be a noose around their neck, but interest on the debentures runs about $1 million per quarter, whereas revenues last quarter were $6 million.  The problem is scale. Employee and administrative expenses are almost $5 million per quarter. Add in other expenses such as trailers and sub-advisory expenses, and it looks like AHF needs to double revenues from the current level to even begin thinking about digging themselves out.  But if the debenture holders keep getting paid, I’d say AHF has another few years (till 2019, when the debentures mature) to figure things out.