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Portfolio changes: HAWK and AIG

May 25, 2011

Seahawk Drilling (HAWKQ):
Yesterday I sold my entire position in Seahawk Drilling for a loss of about 20%. I really should have sold this position several months ago after the bankruptcy filing when it became clear that my investment thesis hadn’t panned out. The bankruptcy filing was the nail in the coffin, almost certainly limiting any future shareholder upside. It is possible, of course, that the Mexican liabilities which forced the filing will be in the end not be payable. If this were the case, after payment of the bankruptcy fees it would leave current Seahawk shareholders with one and a fraction (let’s say .5 to be generous) shares of HERO, with a current value equal to about $9.25 a Seahawk share. However, if the liabilities turn out to be real, shareholders will effectively be left with nothing. Thus, holding on to HAWK shares the upside looks to be 30-40% vs. the potential downside of a total loss. Given that I’ m not very well schooled in the bankruptcy process and I don’t feel comfortable handicapping the legal outcome of the Mexican liability question, I feel it’s better to take a 20% loss now than risk a total loss of capital.

American International Group (AIG)
Yesterday I also completed my position in AIG, buying a second tranche at $29.60, just above the $29 re-IPO price announced yesterday evening. I see that in pre-market trading this morning shares are trading down another dollar. Not to worry. I foresee the shares will be volatile for the next couple of weeks. Pressure from the US Treasury ownership overhang should continue to be felt for the next year or so. I’ve purchased my position with a 5 year time horizon so I don’t care too much about near term price fluctuations. Of course, if Mr. Market offers me a further 30 or 40% discount over current prices I may have a hard time resisting the purchase of additional shares.

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