Good morning and happy Friday!


Fairpoint (LON:FRP) (suspended)

This should be the last time we mention this legal services / debt management firm.

Last time I covered it, I said it was hard to imagine the equity was worth anything. £20 million in bank debt had been sold off to a sector specialist, who was continuing to finance the subsidiaries.

Those selected subsidiaries continue to trade, but the holding company (i.e. the company which some of us bought shares in) is entering administration:

...ongoing support for the Group's subsidiaries outside of the Legal Businesses is made more difficult due to the existence of the onerous lease on the Group's head office which has an annual commitment of c£1m per annum for a further 4 years. As a result, and following detailed discussions and the evaluation of a number of options, the Board has concluded that the holding company of the Group, Fairpoint Group plc, is no longer able to continue trading as a going concern and has filed notice of intention to appoint administrators.


People should have mentally written this down to zero some time ago, in my opinion.

I haven't sold anything short in a good while but this is an example of where, if the shares had been still trading up to this point, it might have been a good idea. You only need a limited number of people to think that the shares are not worthless for the share price to remain at a level greater than zero, and for a 100% negative return to be achieved!


Additional comment from Paul:  I agree with Graham that Fairpoint has been a terrible mess. I've certainly learned a lot from this one, which we've discussed here before.

I'd just like to come back to Graham on the point of possibly shorting this type of thing (Fairpoint). DON'T! It's way too risky. There are a number of issues. Firstly, when the shares are suspended, the Spread Bet or CFD provider will usually increase it to 100% margin, on your original transaction price. This can suddenly swallow up a load of funds on your account, which are now effectively frozen. It can take months, and sometimes even years, for the stock to be valued at nil, and hence to get your funds unfrozen. So what seemed like a win, soon…

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