Playboy Enterprises: Worthless, Part 1

There's a story running on Adult FYI about the purported "value" of Playboy Enterprises, which owns such things as the Mansion, the magazine, Club Jenna and some shitty satellite porn networks. The import of the story (link here) is that there are lots of physical assets than an investor would find valuable.

PEI is worthless, at least financially. Here's why.

1. The Playboy Mansion. First off, discount the Mansion as anything of value. The writer at Crane's Chicago Business think it's worth a ton because Hef bought it in the early 1970's for about $1.2MM. Money gained via an IPO, not through his own personal means. They now estimate the property to be worth $35MM. Wonderful idea, but they missed one key problem: the Mansion serves as the collateral for a $50MM loan from the Bank of America (see the entire Credit Agreement here. Copy of the Deed of Trust here.) Even worse, Bank of America is actively looking for other lenders to buy out its stake down to $30MM, as noted in the 7th Amendment to this credit agreement, seen here.. Other indicators that B of A isn't so happy with Hef and the company include: an interest rate increase, an increase in the commitment fee to use the credit facility, a mandatory recapitalization of the company, and a limitation on the company incurring any new debt without the bank's consent.

Basically, if you sold the Mansion, Playboy as a going concern would evaporate. With no other collateral to support any new borrowing, the company would have no way to issue letters of credit or subsidize any short-term finance gaps. Nor would they probably be able to find a new bank, since it's clear they're being kicked out by their old bank.

And let's finally dispense with the myth that Hef "owns" the Mansion. The Deed is in the company's name, always has been. He lives there basically as a renter, and has done so for over thirty years. He's required to pay the company for all of his personal expenses, right after the company spends $100M a year to have an auditor come in and determine the market value of renting that kind of space.

And in case you're financially illiterate:

$1M = one thousand
$1MM = one million

Tomorrow: why would you want a stock that closed at $2.48 per share, when it should be at $62.39, and has never paid a dividend.