180 DEGREE CAPITAL CORP. ISSUES UPDATE LETTER TO SHAREHOLDERS - Seite 2

 

It is important to remember that TURN has permanent capital. While other funds have to sell due to redemptions or other factors, we do not.  We started the year with $51 million in cash and public company securities, and $12 million of that amount in cash. As you can imagine, we have been adding to certain select names. The adds, however, have been on the margin.  We mentioned COVID-19 as a risk in our fourth quarter letter and we have waited a bit to add to our equity exposure. Today, our cash position is more than 10% of our combined cash and public company securities.
 

This meltdown is real, and the economic ramifications of worldwide quarantines are yet to be fully felt.  During this time, we are less preoccupied with TURN’s stock price and what our transitory book value is going to be at the end of this quarter. There is no doubt in my mind that this wipeout will end with companies going out of business.  We have spent the last few weeks stress testing our financial models for each of our holdings for potential revenue declines of 50 percent or more for a period of quarters.  We’re actively assessing what each of our holdings have to do on the cost side to conserve cash, protect its balance sheets, and get to the other side of this crisis.  As a general overview, the majority of our holdings do not have significant or outsized financial leverage.  Many have net cash.  But like the rest of the world, they have the uncertainty of a complete collapse in their revenues.  Just because a company isn’t tripping debt covenants doesn’t mean that the company won’t face a cash crunch.  We have been spending time with our holdings, hearing their action plans for this crisis and providing our perspectives on these plans.  We are stress testing our own models to assess how long a company can survive this downturn.  We have told every one of our companies that their job right now is to: 1) preserve cash and protect the balance sheet, and 2) challenge themselves to learn how to operate and survive with revenues down 50 percent.  As one very smart friend of mine told me, “you aren’t serving your employees if you drive the bus off the cliff.”