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53rd Street Capital - Quarterly Investor Letter - Q3 2015

53rd Street Capital is a registered investment adviser offering a event driven investment strategy through separately managed accounts.

During Q3 '15, the 53rd Street Capital composite returned -0.91%, compared to a return of -6.94% for the S&P 500 during the same period.

The letter discusses 53rd Street Capital's performance and portfolio during Q3 '15.

Dear Investors,

The 53rd Street Capital Composite returned -0.91% in the third quarter of 2015. The S&P 500 returned -6.94% during the same period. For the third quarter, the firm had a daily average gross exposure of 101.2%. See below for a summary of the firm's performance.

PERFORMANCE

53rd Street Capital Composite - 2015 Third Quarter: -0.91%

53rd Street Capital Composite - 2015 Year to Date: +13.08%

S&P 500 - 2015 Third Quarter: -6.94%

S&P 500 - 2015 Year to Date: -6.74%

TOP 5 HOLDINGS (IN ALPHABETICAL ORDER)

· Bombardier Preferred Shares Series 4 (BBD.PR.C:CA)

· Essex Rental Corp. (NASDAQ:ESSX)

· PayPal Holdings, Inc. (NASDAQ:PYPL)

· Renren Inc. (NYSE:RENN)

· Yahoo! Inc. (NASDAQ:YHOO)

SELECTED PORTFOLIO POSITIONS

BAKER HUGHES - 53rd Street Capital's position in Bakers Hughes (NYSE:BHI) has been left unchanged during the quarter. Although the deal spread for the Baker Hughes and Halliburton (NYSE:HAL) merger has widened during the quarter from 9.3% to 12.6%, there have been several key developments that lead us to believe that the deal is still on track to close between Q4 2015 and Q1 2016. These developments include the recent announcement by Schlumberger (NYSE:SLB), Baker Hughes and Halliburton's largest competitor, to acquire oil equipment's company Cameron (NYSE:CAM) for ~$14.8b. This acquisition should separate Schlumberger as the clear number one oil services player once completed (even in the event that Baker Hughes and Halliburton successfully merge, which is an overhanging regulator concern). In addition, Baker Hughes and Halliburton continue to make positive progress to appease regulators in hopes of closing the deal such as lining up over $10b of asset divestitures.

BOMBARDIER - 53rd Street Capital initiated a position in the Bombardier Preferred Shares Series 4 (BBD.PR.C:CA) during the third quarter at an average price of ~C$9.50 and a current yield of 15% (38 cents on the dollar with a par value of C$25.00). It is currently trading at 49 cents on the dollar and is our best performing position this quarter. Bombardier, based in Canada, is a global leading manufacturer of transportation equipment split into two main businesses, aerospace and rail. The upcoming CSeries jets have been shown to be best-in-class aircraft, putting them in competition with Boeing and Airbus. The entire capital structure of Bombardier has fallen due to delays in its new CSeries aircraft which has been over-budget and required significant capital outlay to complete. There are fears that the balance sheet won't be able to sustain the capital outlays for much longer. Currently, Bombardier has a normalized annual cash spend of $2b. According to our calculations, Bombardier is able to carry this burden for another 2 to 3 years with its $3.1b cash on hand, plus their upcoming ~$1b rail IPO, and cash generated by the rail division. The company has also tried to quell concerns by hiring a new CEO and CFO, as well as a new sales team. Additionally, the company reduced its workforce and initiated capital raising efforts.

Our forward looking potential catalysts include: 1) An IPO of a part of its rail business by year end, potentially generating over $1b; 2) Recent discussions that the company will be looking to sell stakes in other business units; 3) Completion of the CSeries which is close to full certification and is scheduled for deliveries in 2016 (with 243 firm orders with optionality for 360 more); 4) Their new sales team gaining traction on new CSeries orders. In addition, last week, the local government of Quebec announced that if Bombardier were to ever need financial assistance, they would provide the necessary aid. Quebec views Bombardier as a "huge asset" as the company employs over 40,000 people in the province. We believe the Preferred Shares Series 4 presents the most attractive risk/reward profile in the Bombardier capital structure due to its cumulative dividend and upside to par.

BOULDER BRANDS - 53rd Street Capital initiated a position in Boulder Brands (NASDAQ:BDBD) at an average price of $6.85. Boulder Brands is a small specialty health foods supplier in the US and Canada. We built the position after its founder and CEO...


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