RPN Explains Support For PICO Board. Century Ups Debt Issuance

There has been lively commentary on the RPN Comment Board the last week. We have also received several private emails of an emotional nature. These communications disagree with our support of the PICO Holdings‘ Board, encourage us to adopt a more confrontational posture with the PICO Board and find fault with the PICO Board’s governance and financial management.

In today’s post and our next post, we address the legitimate and appropriate concerns of our readers and we articulate our support the PICO Board, comprised of Daniel Silvers, Andrew Cates, Eric Speron, Max Webb and Greg Bylinsky.

We divide our explanation into two parts. In today’s post, we discuss the historical aspects of our analysis.  In our next post, we’ll expand on current PICO corporate governance and return of capital.

We’re sharing our opinion. Opinions are not facts. In that sense, this debate is a new phenomenon for PICO owners.  We are debating among ourselves the conduct and intentions of the PICO Board. Having this discussion is a quality problem!  A year ago, shareholders were abused and deceived by a corrupt and incompetent Legacy Board. At RPN, we are grateful that this situation is now past.

Given that we all express opinion, it will be a harvest season or two before the truth emerges. Both the supporters and the detractors of the PICO Board are reflecting on their own past business experience combined with their assimilation of the PICO facts up to this point, and arriving at a synthesis for a judgement going forward. By definition, we are all speculating.

With these posts, we are not engaging in argument with our fellow shareowners. Our loyalty to shareowner value is unquestioned. Our readers’ loyalty to shareowner value is equally certain. We all want the best economic outcome for PICO owners.

Put more simply, we ain’t sayin’ we are right and anyone else is wrong. We are elaborating on how we see the current PICO situation. We always leave the door open to being wrong – that’s what keeps us right more often than not.


A common and pertinent question in the capitalist environment is: “What have you done for me lately?”

This question is a fixed aspect of capitalism. We don’t dispute this mentality; economics is constantly changing, and inordinate loyalty for past achievements often produces losses. However, we feel a historical review is of useful here. We feel it sheds light on the PICO Board’s intentions.

The Palace Coup:

We go back six months. The PICO Board was dominated by Raymond “Delaymond” Marino and Hapless Howie Brownstein. To be brief, PICO’s corporate performance under these men was unacceptable. RPN wore our voice out with complaints about the poor stewardship of PICO under these men.

Then in early December 2016, the situation improved in an instant. Gone were self-interested Directors Marino and Brownstein, with the former removed as Chairman. In control were our shareholder oriented Directors. Simultaneously, we got welcome measures to strengthen corporate governance: Board declassification, a May 4 Annual Meeting, reduced number of Directors and compensation revision.

Granted, much of this was in the works before Messrs. Marino and Brownstein got the Boardroom stiff arm. But since then, the Board’s agenda and pace have been no less substantial (more on this in next post).

It would be easy to dismiss the Palace Coup as a power play by Messrs. Silvers, Cates and Speron. Surely a desire to play Empire at PICO was part of it. But for two reasons, we disagree that it was all about power. First, along with the removal of the self-interested Directors, this Board gave us improved corporate governance in the form of enhanced Director accountability. And since then, Director accountability has increased. That doesn’t sound like a pure power play to us.

Second, the shareholder-oriented Directors assumed considerable career risk by executing the Palace Coup, especially Mr. Silvers. As soon as one Director whispers into the ear of another Director, “I am sick of this nonsense. Let’s shake this PICO party up,” the risk meter skyrockets. The whisperer incurs the risk that the listener will turn Benedict Arnold and reveal the plot in pursuit of their own power grab. Such Boardroom conduct, if exposed prematurely, can be humiliating and damaging to a CV and to future earnings power.

But Mr. Silvers did not need just one fellow rebel, he needed three. The risk meter rose proportionally with each new recruit to the PICO Special Ops.

If at any time, the Palace Coup was either discovered accidentally or revealed deliberately, the participants — especially Mr. Silvers — risked a career damaging embarrassment. Such a mission must be consummated decisively, completely and flawlessly.

Messrs. Silvers, Cates and Speron did just that. The Palace Coup surprised everyone we talked to. All were pleased. And the blow was decisive and lethal.

We give these Directors high applause for both substance and execution of the Palace Coup. Perhaps we are too soft to be effective capitalists, but we continue to feel loyalty to these Directors for this bold and effective stroke which benefited PICO owners in huge measure.

Breaking Bogue – UCP:

We admire the PICO Board’s handling of UCP over the last few months. UCP has been an awful investee; corporate governance is poor, the business model is flawed, management is inept and profitability does not exist.

As the UCP deadline to nominate Directors and submit proposals neared, we wondered what PICO would do. We heard that at least one other UCP shareholder was poised to nominate a Director for Kathleen Wade‘s seat, in the event that the PICO Board went limp on this matter.

But the PICO Board appropriately went knuckles up against UCP. Not only was a rival Director nominated to contest Mrs. Wade’s seat, but a flurry of corporate governance improvement measures were proposed – all of which would have been approved, given PICO’s 57% ownership stake in UCP.

We salute the PICO Board’s posture in relation to UCP. In our experience, consensus building and harmonious negotiation only works when both parties are rational and honest. UCP Directors and Executives have a well established track record of ineptitude and dishonesty – so an MMA-approved approach was the only viable option.

In her fantastic book, “The White Sharks of Wall Street,” Diana Henriques quotes a takeover artist from a past generation: Thomas Mellon Evans. Mr. Evans reportedly said, “Pressure is often more effective than reason.” The PICO Board accurately assessed the UCP situation and took an appropriately firm stance. We believe this contributed to UCP’s willingness to sell itself and rid PICO owners of this burden. We applaud the current PICO Board for its appropriate activism towards Dustin Bogue and UCP.

Delaware Reincorporation:

We are all familiar with John “The Juicer” Hart’s 2015 and 2016 attempts to bait us into passing the Delaware Reincorporation Proposal. Juicer forced PICO owners into an unfortunate bargain whereby if we wanted protection of our economic value pursuant to Net Operating Losses, we had to provide Juicer and his corrupt and incompetent cronies with enhanced Director entrenchment and legal protection by voting “For” Delaware Reincorporation. Lost in the argument was the fact that the NOLs arose from Juicer’s incompetence.

In both 2015 and 2016, PICO owners presciently decided to risk losing the value of the NOLs in exchange for retention of stronger corporate governance. Recall that if we wanted NOL protection pursuant to Juicer’s Reincorporation Proposal, we had to relinquish cumulative voting, the ability to call a special meeting and freedom to act by written consent. We prudently rejected Juicer’s despicable horse trade.

The Delaware Reincorporation Proposal of 2017, which was authored by this PICO Board, was different. Like Vito Correleone in word (but not in spirit), this Board made us an offer PICO owners couldn’t refuse: we were offered protection of the NOLs and retention of all our rights as owners to remove Directors and enhance corporate governance. We were offered cake and a fork and knife with which to eat it, too.

In other words, the 2017 Proposal was a win-win for owners and it left PICO Directors just as vulnerable, or accountable, as they were before.

To us, such a gesture speaks volumes about this Board’s intentions.

Next post, we will opine on current events. Several readers feel the current Board is stewarding PICO in sub-optimal fashion. We will address those concerns.

Century Debt Issuance – Pieces Falling Into Place

On May 12, Century Communities announced a successful private debt issuance of $400 million in Senior Notes due 2025, to J.P. Morgan Securities LLC. The debt was issued at par and carries an interest rate of 5.875%. The principal amount is noteworthy because Century originally intended to issue only $300 million.

According to the SEC filing, “The Company intends to use a portion of the net proceeds from the offering for the repayment of outstanding debt under its revolving credit facility, and to the extent not used for such purpose, the Company intends to use the remainder of the net proceeds from the offering for general corporate purposes, which may include among other things, working capital and acquisitions, including the previously announced merger transaction with UCP, Inc.”

The initial purchasers of Century’s new debt and the amounts taken are:

JP Morgan Securities LLC                                $240,000,000
Merrill Lynch, Pierce, Fenner & Smith              $112,000,000
BBVA Securities Inc.                                          $12,000,000
Fifth Third Securities, Inc.                                  $12,000,000
U.S. Bancorp Investments, Inc.                         $12,000,000
WoodRock Securities L.P.                                 $12,000,000

9 responses to “RPN Explains Support For PICO Board. Century Ups Debt Issuance

  1. Complacency

    Who supports the board and who doesn’t is a worthy dialogue, but I’m mostly concerned with PICO’s lack of transparency. I for one am not necessarily supportive or unsupportive of the board, but I think the lack of transparency absolute total horse shit and completely unnecessary and puzzling.

    PICO has promised monetizations and corresponding returns of capital, but it has failed to describe in any tangible detail how this will occur.

    1. It would seemingly be fair to assume they intend to sell Vidler, but they have not explicitly said so.

    2. Assuming they’re talking about selling ALL assets, they failed to say A. how the return of capital would occur, B. what the tax ramifications would be, and C. how they came to their conclusions on method.

    3. It would make sense that a formal plan of liquidation and dissolution would be the mechanism to affect the ultimate wind down of PICO yet none has been discussed – ever (and a shareholder vote would be required). Nor has any detail of ultimate closure of PICO (post full capital return) been communicated.

    This company obviously has a horrible history of shareholder neglect which is all the more reason for the board to be transparent on these very basic and fundamental aspects of the PICO business plan.

    I believe it is possible that:

    I. There may be some negative tax consequences with returning all the capital to shareholders.

    II. By selling all the assets and returning all the capital PICO would by default discard unused net operating loss carry forwards.

    III. Because of #1 and #2 the board is contemplating changing gears from a liquidation plan to and acquisition plan whereby they try to reinvest monetization proceeds into a cash flowing new business to avoid taxation and to attempt to utilize the NOLs.

    Don’t let I, II, and III cloud my points in 1, 2, and 3. I could be way wrong on I, II, and III. But the point is we’re all guessing. And we should not have to guess.

    RPN, this is not to discredit your trust and faith in the board. It’s to say full disclosure and transparency negates the need for us minority outside owners to rely on trust, faith and hope.

    Why can’t PICO just answer these basic questions? Why keep it a secret? We don’t need to wait harvest seasons to get these answers. We deserve them now.

    • Thank you for this substantial contribution to the discussion, Complacency. Your recent comments are appreciated. We will publish a post shortly that will discuss your concerns. We don’t know that it will resolve your concerns, but it will discuss them. ?

  2. Complacency

    I remind readers of framework that has been discussed in these comment boards on multiple occasions: imagine if you, as an individual, had inherited these PICO assets from a rich uncle. You would definitely not assemble a $10mm/year executive office + a paid five member board of directors! You’d hire an expert attorney at $500/hr to manage the sale process. She would engage an accounting firm and the appropriate banker to broker the sales. AND when you asked your attorney what’s going on, guess what? She would tell you.
    #What’s the big secret?
    #Overpriced unnecessary gatekeepers
    #It’s our money!

  3. Wait a sec?!!

    Is Vidler for sale – yes or no?
    If no, why not? Waiting for a higher price?
    Is PICO in liquidation (formal or informal) – yes or no?
    If no, why not?
    If yes, please clearly state so.
    And if yes, what will taxation look like upon receipt of the cash?
    Might the board change course and start acquiring assets?
    If yes, WTF!, please say it ain’t so!!!
    (But if yes BOD please please please clearly state so and why!
    If no, please clearly state so.

    Thank you PICO BOD and RPN

    • All excellent questions, Tk. Our upcoming post will hopefully answer a few of them for you. At the very least, it will contribute to the productive dialogue.

  4. I don’t think that Pico is in liquidation. Company statements consistently state “Currently, we believe the highest potential return to shareholders is from a return of capital to shareholders”. The key word there is likely “currently”. Additionally, when Pico announced the first of the two water rights sales in AZ, Webb said something to the effect of “we believe the best return on water assets is to end users and not to another intermediary”. (I looked but couldn’t find the specific quote). There are many unanswered questions here. And the board has been silent allowing Webb and Perri to speak on the company’s behalf. It appears that they feel 1) they have the right management team in place (with proper compensation) and 2) the path with the highest ROE for shareholders is not a pure liquidation strategy. I for one would like to hear from some members of the board that weren’t part of the management team during the shipwreck years…

    • Thanks for your comments, Jim. Certain members of the Board are willing to speak with individual shareholders. Max Webb has also indicated a willingness to dialogue with shareowners. We encourage you to call PICO HQ and initiate a dialogue with Mr. Webb, John Perri or another PICO Director. These gentlemen would be able to answer your questions.

  5. If Jim’s interpretation is right, that Vidler (and therefore PICO) is in passive run-off vs. active liquidation mode, it could take many years for market demand to absorb Vidler’s supply. And, if Jim’s interpretation is right, then management should definitely be more clear of their intentions. I think many, including myself, have interpreted PICO’s monetization/return of capital assertions to imply an active process. If the board has decided on the longer-term passive run-off plan, it might be wise to explore “going dark” – to cease to be an SEC filer. This should allow PICO to close and consolidate under Vidler while saving $10s of millions over what it sure to be an extended lifespan. The stock could still trade and the company could voluntarily do its financial reporting at OTC Markets Group (the old Pink Sheets) dealer market. Either way, I agree with the overall sentiments out here that management owes shareholders much better disclosure than is being provided.