Cohodes Targets Exchange Income in Latest Short Campaign

Updated on
  • Drops as much as 10% after Marc Cohodes bets against stock
  • Company says it ‘strenuously disagrees’ with short report

Marc Cohodes in Cotati, California, on May 18, 2011.

Photographer: Thor Swift/The New York Times via Redux

Exchange Income Corp. dropped after short-seller Marc Cohodes said he’s betting against the stock, in what the Canadian aviation company calls a "short and distort campaign."

The shares were trading down 5.2 percent at C$30.96 as of 2:38 p.m. in Toronto on Wednesday, the steepest decline since June 20, after falling as much as 10 percent. Cohodes said in a phone interview that Exchange Income doesn’t generate enough cash to pay its dividend, which is more than double the benchmark index.

"They’re raising money from others to pay a dividend that they don’t even earn or cash," said Cohodes, who’s been betting against embattled mortgage lender Home Capital Group Inc. since 2014. "If you tend to payout more than you make or generate in cash, that’s a very, very, very bad thing."

He declined to share the size of his position against Exchange Income.

‘Strenuously Disagree’

Winnipeg, Manitoba-based Exchange Income said it has been maintaining a consistent strategy since 2004 that helps it grow profitably and pay its dividend, and that it will meet analyst expectations for the 2017 fiscal year. It added it will announce "strong second quarter" results in the week of July 24 instead of its usual August release.

"The short report was deliberately released immediately following the end of the company’s second quarter when Exchange Income Corp. is in a quiet period, and is based on a number of statements, assumptions and opinions with which we strenuously disagree," the company said in a statement Wednesday, without naming Cohodes.

Exchange Income’s dividend payout ratio, which measures the amount of earnings devoted to its dividend, stood at 92 percent at the end of last year, down from 112 percent the previous year, according to data compiled by Bloomberg.

"Its dividend payments are sustainable," Raveel Afzaal, a Toronto-based analyst at Canaccord Genuity Inc., said in an email. Exchange Income should have about C$105 million ($81 million) left over to pay its C$65 million in dividends in 2018, he estimated.

Exchange Income invests in profitable companies in niche markets, with aviation being a main holding.

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