StoneMor, Inc., the Pennsylvania based consolidator and operator of cemeteries and funeral homes, has had a busy April. We’ve seen Moody’s upgrade their credit rating, we’ve seen insider trading purchases of the stock, and we’ve seen an announcement of refinanced debt. That and more leads a press release from Moody’s to state, “. . . .StoneMor’s increased liquidity position will be used to make strategic acquisitions to increase scale and grow profitability.”
These announcements from StoneMor come on the heels of March’s release of the company’s 2020 financial reports that showed increased revenue and profitability to the company that has been described by current CEO Joe Redling as being in a “transformation” mode for the past two years. (You can see Funeral Director Daily’s report on StoneMor, Inc.’s 2020 report here.)
Here are a few of the announcements that have come in April out of StoneMor, Inc. or by other parties about StoneMor, Inc.:
Moody’s Upgrade — You can see a report here dated April 20 from Yahoo Finance about Moody’s upgrade to the Corporate Family Rating (CFR) of StoneMor, Inc. Moody’s has also assigned a B3 rating to StoneMor’s proposed Senior Secured Notes due in 2029. The B3 rating comes on the heels of StoneMor, Inc. being upgraded in January 2021 from a Caa2 to a Caa1 rating.
Part of Moody’s rationale for the upgrade as you can see in the report includes “. . .the company’s continued improvements in operating performance driven by increased sales productivity and successful cost-cutting measures resulting in at least $50 million of run-rate savings (and) . . . . also reflects the extension of the company’s debt maturity profile in connection with the proposed refinancing, which pushes the next debt maturity to 2029.”
Refinanced Debt — You can read about the refinancing of debt here in a press release from StoneMor, Inc. In essence, the company will be taking on $400 million of debt at 8.5% which will be used to pay off $338 million of debt, financed at between 9.875% and 11.5%, that was not due until 2024. To do so, StoneMor, Inc. will pay a pre-payment fee of about $18 million.
The company notes in the press release that “Any remaining proceeds will be used for general corporate purposes, including acquisitions.”
Insider Trading — On this Form 4 from the Securities and Exchange Commission you can see that lead StoneMor, Inc. stockholder Andrew Axelrod purchased over 5.5 million shares of StoneMor, Inc. stock at an average price of $2.20 on April 14, 2021. Axelrod and companies he controls, including Axar Capital Management and Axar GP, LLC, now own over 88 million shares of StoneMor, Inc. stock according to the form. Axelrod is a member of the StoneMor, Inc. Board of Directors.
Funeral Director Daily take: While we believe that the jury is still out on the “transformation” at StoneMor, these events all appear to be positive, in a business sense. We take a more conservative approach as to all the reasons for seeming improvement. . . . for instance with our conservative point of view, we wonder is everything positive or does part of the 2020 financial success have to do with the COVID-19 pandemic and its increased number of deaths? Our approach is that the jury is still out.
However, as we have pointed out with other companies, if you can get a chance to lower your debt payments, even if extending the payback for some time, that is almost always a good thing. In the case of StoneMor, it appears that they will be paying an approximate average of 2% points less on $338 million in debt. . . . . that works out to be about $6.7 million in cash flow savings per year. And, out until the debt is due in 2029 that’s a total of about $54 million in savings. Even with paying an $18 million pre-payment penalty, it works out to a savings of over $36 million for the company long-term.
That’s something that we’ve always advocated for smaller independent operators. A fee to pre-pay debt and refinance at lower rates should not be a deterrent to do so if the total outcome is positive. And, the more that you owe, the bigger the savings may be. While I served as Chair of the Debt Management committee at the University of Minnesota, we had long-term debt of about $1.6 billion. Our CFO and Debt Management advisors were always looking for ways to lower the payments and there were times where it paid off to pay that fee.
Also, whenever somebody on the Board of Directors is willing to put more of their own money into a company, that is generally a positive note. Seeing Mr. Axelrod and his companies invest another $11 million into StoneMor, Inc. at this time appears to be a positive message to other shareholders.
Finally, from the tone of these press releases, it appears that StoneMor may be done with their selective disposition of funeral homes and cemeteries and may be on the hunt for some new properties. If you are an independent in the Eastern half of the United States and potentially thinking of selling your property, that is good news because one more bidder certainly will not lower the acquisition price.
Disclaimer— The author of this article holds a stock position in StoneMor, Inc.
More news from the world of Death Care:
- Kafer: Composting of human bodies may draw the ire of some, but I’m all for returning to the substrate of life. The Denver Post (CO)
- Why a Vancouver cemetery is planting squash, kale, and corn. Atlas Obscura
- Mississippi cemetery prepped to receive Confederate monument. WMCA Action News. (TN)
- Coles Funeral Directors launch in Llandaff. Wales247.com (Great Britain)
- Residents near historic cemetery concerned about excessive smoke from crematory. KRQE TV – Albuquerque (NM)
- Obituary: G. Brian Roberts, 77. Buffalo News (NY)
- Dignity (plc) Chairman Clive Whiley and independent directors depart after losing shareholder vote. Proactive (Great Britain)
- Dignity (plc) shareholders oust chairman in win for top investor Phoenix
- Carriage Services receives a “Buy” from Barrington. Smarter Analyst
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