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Home » Browns » Et tu, Pluto? //updated alt title: Why Pluto is a pro.

Et tu, Pluto? //updated alt title: Why Pluto is a pro.

Screen Shot 2013-07-01 at 3.07.56 PM

Click for cle-dot-com article.

The Plain Dealer has hit rock bottom.  When normally reliable Terry Pluto makes a mistake that no blogger would make, it should be a wake up call.

Investigation of downgrade does not equal downgrade.

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Above is a screen cap of the cle-dot-com webpage of Pluto’s Sunday article.  It states a downgrade occurred at PFJ.

That’s major news.

I wondered how I’d missed it.  I knew there was nothing in the WSJ piece revealing a new downgrade of PFJ debt; but the sentence is written as though a downgrade occurred in addition to the WSJ article.  (Use of the word “and” is important.)  So I checked Moodys (who have announced an investigation) and S&P (who have not).  

Here are screen caps of today’s PFJ pages at Moody’s and S&P:

moody

No update from Moody’s today that indicates a downgrade or any action since April 2013.

.

s&p

The last S&P rating on PFJ was July 2012.

.

S&P revised its outlook to negative in May.  This is not a downgrade.  The report reads:

[S&P] revised the outlook to negative from stable on Knoxville, Tenn.-based Pilot Travel Centers LLC. We affirmed our ratings on the company, including the 'BB' corporate credit rating.  At the same time, we are affirming our 'BB' senior secured issue-level rating on the company's revolving credit facility and term debt. ...
Pilot's liquidity position is particularly sensitive to vendor terms and conditions and unfavorable developments in the investigation could induce vendors to tighten payment terms. We could lower the rating in the event that vendors meaningfully tighten days payable and other payment terms and Pilot was not unable to secure fuel purchases in proportion to its business needs.

Moody’s made their announcement of a “review down” in mid-April and used much the same verbiage (“liquidity concerns”) as S&P.  If you want to know more about Moody’s downgrade investigation and how it might impact Haslam, PFJ, and the Browns, please read my piece from April.  Nothing has changed in the two-plus months since.

Among the takeaways in the April piece is that PFJ took on $1.1b of additional debt just before Haslam purchased the Browns for $1.01b.  In other words, the Browns’ buy appears to have been accomplished wholly through use of PFJ secured debt.  Could be nothing, could be something.  I.e., if PFJ falters, it’s going to affect the Browns.  I.e., if PFJ falters, will Haslam be able to pay Lerner the $305m he is due in two years?

.

It’s bad enough that ESPN, WSJ, and Forbes are only now noticing the $4b of debt that PFJ carries; two months after Moody’s brought its existence to everyone’s attention.  It’s beyond bad when phantom downgrades start getting reported.

Pluto and the PD and cleveland.com owe Jimmy Haslam an apology.  A real apology and retraction.

.

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UPDATE 7/2:  Pluto responds via twitter:

Screen Shot 2013-07-02 at 8.23.21 AM

This quote is directly from WSJ story:”S&P downgraded Pilot’s debt, calling its financial risk ‘significant.’ “

This raises a whole other set of questions.

  • What was the context of WSJ sourcing?
  • Can WSJ be wrong?
  • Forbes ran a substance-less fluff piece in the Rovell mode last week, perhaps the WSJ is also trying to get into the substance-less-sports-business niche?

But since the WSJ story is behind a pay-wall and I don’t care to subscribe, those questions will go unanswered.

That leaves us with the main question:  I’m reading a PD piece under a Terry Pluto byline and they get a story wrong.  Isn’t the “I’m just quoting the source” excuse the way bad reporting goes viral?  It’s my opinion that the writer owns it once he publishes an article under his name.  Ownership includes corrections of errors when found.

And that’s probably enough on that.

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UPDATE #3, 7/2 PM:  Pluto retracts.

Pilot Flying J's credit not 'downgraded,' but clouds still loom over Jimmy Haslam and Cleveland Browns: Terry Pluto
When you mess up, you have to fess up.
That’s what I need to do when it comes to my Monday column about Jimmy Haslam and Pilot Flying J. In that story, I wrote that his company’s credit rating had been “downgraded.”

That’s the lede of Terry Pluto’s latest article and that’s how Terry Pluto has earned his reputation as a top-end journo.  Thanks TP.


15 Comments

  1. tmoore94 says:

    Making the world a little smarter, one blog post at a time.

  2. Max says:

    looks like Jimmy-Boy needs to sell half a million brake pads

  3. Here is the better question and since most of the media is a good two months behind what is actually happening I ask this: When does he lose the team? I actually think we are past the if and have moved on to the when.

    I think the minor league baseball sale is a far bigger issue than people are making it out to be. It’s a solution to a short term cash flow problem.

    The long term cash problem which you have nailed here in the past is the elephant in the room that eventually even Terry Pluto will figure out. He has no margin. None. He operates in an industry in which the margins are small and the only real way to make money is well a monopoly/borderline monopoly. (I’m not a lawyer…I’m an Insurance agent)

    He probably will not go to jail but the fine and corresponding legal fees at this point will sink the company to the point that the family may have to break it up and sell. Then what?

    What happens when none of the cap space is used next offseason? Is that a big enough red flag for the local media?

    All of this being said…the next owner of the Browns is in a great spot. He has a fan base that will put up with ANYTHING. An owner who moved the team…an owner who helped the previous owner move the team which led to a son who likes the Premier League (nothing wrong with that) which led to well this guy. An oil guy that was a partial owner of the Steelers…and with that enjoy the Summer because the Indians are in 1st place.

    • bupalos says:

      Contingent on the supposition that Pilot’s profitability wasn’t significantly dependent on this fraud, I think you might be underestimating the value of PFJ. The financials say it has profits of 300-400MM per year with existing assets (the locations) matching liabilities (their debt, at least 1BB of which is really another family asset (the browns) that probably tosses off another 50+MM per year. I think if worst came to worst they could go public and essentially cash out with plenty left to hold onto the Browns.

      But it is interesting that Loves, Travel Centers, and PFJ are all pretty close to the same size in the same space but the former 2 don’t seem to make commensurate profits. I’d like to delve into why that is so before assuming PFJ is really as strong as they look on paper.

      • jimkanicki says:

        the problem with PFJ’s non-cash assets is that they were too successful creating their quasi-monopoly. that is, only Love’s would seem to be able to buy those truck stops* and it doesn’t look like they’d be bidding against anyone. (TA shows a market cap of $300M.. don’t see how they could get heavy into taking on the PFJ properties.) thus, i suspect it would be very hard for PFJ to get book value for their real estate assets.

        i havent looked at love’s profits but (if memory serves) PFJ’s $500m in income is less impressive when you see if comes against $29b in rev… it’s like 3% operating margin. also, margin like that (if correct) coupled with lots of fly-over real estate implies that going public wont solve things. i dont think wall st. would value the company all that highly.

        * correcting myself: there’s a Canadian company, Couche-Tard, that is about the same size as Loves/PFJ. they could be a player.

    • jimkanicki says:

      agreed on the minor league ball team sale. that was supposed to be one of the kids’ hobbies and would break them into the ‘owning a sports team’ business. (i surmise.) not a good sign if you’re selling it.

      to be honest.. the dysfunction of a 30b-revenue company resorting to cheesy swindling of their customers could be ascribed to the facts of life within this low margin business. such a bad business practice; so very non-long-view. anyone can tell you -and insurance men more than most- it’s a lot easier to keep existing customers than to find new ones. and you don’t keep customers by cheating them. to abide (and encourage) the practice might have been out of necessity, not just avarice? ugh.

      and yeah, if the browns wind up eating 30m in salary cap space.. that’s your flag that a sale is imminent. [imo, of course.]

      i wonder what happened with that CEO that came and went. that’d be a good story.

      • bupalos says:

        What was his timeline? Was the FBI investigation already underway? Maybe he tipped things off. Or is it possible that he found out about the fraud and decided bolting was safer than playing ball?

        • jimkanicki says:

          sometime in 1994: Jimmy Haslam named CEO.
          5/2011: CHS-1 contacts FBI.
          9/2012: PFJ announces John Compton as CEO; Jimmy H., Chairman; Big Jim, Founder/Chairman Emeritus.
          2/2013: John Compton kept on payroll as consultant.
          4/2013: Compton is not mentioned in the search warrant.

          Sooo… it’s all guesswork with Compton.

          • Anonymous says:

            Man is that weird. Its hard to think the quick compton exit/non-exit doesn’t have something to do with this (or something worse than this that they got hidden in time.) I think there’s very close to 0% chance that Jimmy’s story — that he quickly rediscovered that his first love was gas stations over football teams — is anything like true.

  4. bupalos says:

    They certainly should correct, but I’m not sure there is any kind of apology warranted beyond a general one to everyone for getting something wrong. The distinction between a downgrade and a negative outlook certainly would have significance for Jimmy’s business, but doesn’t have much significance in terms of the article. Pluto (who — let’s be honest — isn’t really all that sharp) is just writing a general handwringer about the new ownership’s precarious position. It’s just a difference between “jimmy looks like he may soon be in more trouble with his debt” versus “jimmy is in trouble with his debt right now.” It’s kind of marginal.

    I would like to hear your take on just how significant you think this whole thing is going to be for Haslam. I mean, it looks increasingly clear that the guy is not going to have to take any personal legal responsibility, and I seriously doubt that the “brand” is going to suffer, because really diesel is just a commodity when you come down to it. No significant volume of customers are going to stop buying at PFJ locations because of this, probably not even the guys who are actually suing. The only place I could see this really stinging them is if it somehow reflects back to an anticompetitive practice and the FJ acquisition is revisited. Or I guess if there is a significant “punitive” award, like more than a couple hundred million.

    • jimkanicki says:

      Agree to disagree. S&P specially reaffirmed the rating. To report an effective reaffirmation of the existing rating as a downgrade is to be 100% wrong. That’s important, imo.

      Admittedly, I’m more tuned in to the actual rating action because I think that’s when dominos start falling. (Like, I check to see if there’s an update from Moody’s on a regular basis.) The reporting is sloppy and it matters. Considering that it’s now linked to ESPN… and considering that Jimmy is apparently operating hand-to-mouth keeping his shops open… they can’t afford to have wrong downgrade reports floating around. The reality is damaging enough.

      My take is that a downgrade makes it harder/more expensive to rollover their debts when they come due in 2016. He seems to be betting heavily on the come. What I dont know and would like to know is this: if their debt is downgraded today, are their four loans re-‘amortized’ such that the debt service is increased? If yes, things could come to a head fast. But I don’t know if their rates are locked in; I don’t know if they’re using local (friendly) bankers or national ones.

      With 4b in loans coming due in 2016… well companies don’t have 4b in cash sitting around to settle those obligations. Especially not firms whose Moody’s reports uses terms like ‘liquidity’ and ‘low margin fuel sales’ more than once. From here, it looks like he’ll need to roll those loans and from here it looks like that’s not a slam dunk.

      And I caveat it up with: I know nothing more than what I’ve read in the FBI pdfs and the Moody’s reports.

      • bupalos says:

        I just can’t see anyone who is actually involved in financing PFJ being in any way affected by some sportswriter somewhere getting something that clearly wrong. If this was a public company relying on issuing stock, that would be one thing. That could affect the stock price and thus their ability to raise money by an offering. But I just don’t see the direct connection to financials here.

        But possibly to show how little I know, I had assumed that the debt is not bank loans but corporate bonds that might be held by any institution, and the existing bonds wouldn’t fluctuate with a rating change. Isn’t that the usual way? This 4BB is just short term bank loans, all due in ’16?

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